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Questions
Explain any four determinants of elasticity of supply.
Explain three determinants of elasticity of supply.
Explain the factors determining price elasticity of supply.
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Solution
- Nature of Inputs used: The elasticity of supply depends on the nature of inputs used for the production of a commodity. If commonly available inputs are used, supply will be elastic. If inputs used are not commonly available, supply will be inelastic.
- Time period: Elasticity of supply also depends upon the length of time for response. It may be difficult to change quantity of supply in few weeks or months in response to price change but easy to do so over a period of year. Therefore, supply is relatively inelastic in the short run and relatively elastic in the long run.
- Nature of commodity produced: The supply of durable goods is relatively elastic. Durable goods can be stored and hence producers can meet the changing market demand either by running down their stocks or by building up stocks. On the other hand, supply of perishable goods is relatively inelastic because these goods cannot be stored for long. These goods have to be sold out.
- Cost of production: Elasticity of supply is also influenced by cost of production. If an increase in output by the firms in an industry causes only a small increase or decrease in cost per unit of output, supply will be more elastic. On the other hand, if an increase in supply leads to a large increase in cost of production, the supply will be relatively inelastic.
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