Determinants of Elasticity of Supply

Nature of the commodity: The supply of durable goods can be increased or decreased effectively in response to change in price and hence durable goods are relatively elastic. On the other hand the perishable goods cannot be stored and thus supply cannot be altered significantly in response to change in their price. Hence the price of the perishable goods are relatively less elastic.

Time Factor: A price change may have a small response on the quantity supplied because output may change by small quantity in the short period since the production capacity may have been limited. Therefore, in the short run supply tends to be relatively inelastic. On the other hand in the long run production capacity may be increased or supply may also be raised therefore in the long run supply is elastic.

Availability of facility for expanding output: If producers have sufficient production facilities such as availability of power, raw materials, etc, they would be able to increase their supply in response to rise in price. On the other hand if there is a shortage of such facilities then expansion of supply will not be possible due to rise in price.

Change in cost of production: Elasticity of supply depends upon the change in cost. If an increase of output by a firm in an industry causes only a slight increase in the cost then supply will remain fairly elastic. On the other hand if an increase in output bring about a large increase in cost due to rise in price of inputs etc, then supply will be relatively inelastic.

Nature of inputs: Elasticity of supply depend upon the nature of inputs for the production of a commodity. If the production requires inputs that are easily available, then its supply will be relatively elastic. On the other hand, if it uses specialized inputs then its supply will be relatively inelastic.

Risk Taking: If entrepreneurs are willing to take risk, then supply will be more elastic and if they are reluctant to take risk then supply would be inelastic.

Related Posts

Comments are closed.

© 2023 Business Management - Theme by WPEnjoy · Powered by WordPress