Determinants of price elasticity of supply
There are several factors, which influence the price elasticity of supply.
Costs of production. Supply tends to he inelastic if the costs of
production are high. If they are low, supply is elastic. If the firm is
subject to minor changes in costs as output changes, supply will tend to be more elastic. In case of LDCs, supply tends to be inelastic since costs of production are generally high.
Technology. Efficient technology implies elastic supply while
inefficient technology leads to inelastic supply. Still, supply in LDCs
tends to be inelastic because of the inefficient technology.
Availability of factor inputs. If there is excess capacity, supply tends to be elastic and if resources are scarce, supply tends to be inelastic.
Time period. This is an important factor influencing price elasticity of supply. In general, supply is more elastic in the long run than in the
short run.
The monetary period. In this case, it is impossible to expand the
supply and therefore supply is perfectly inelastic. In the short period, it is possible to expand the supply by using more of the variable factors.
However, the existence of fixed factors limits the scope for increased
output. Therefore, supply tends to be inelastic in the short run. It tends to the elastic in the long period during which all factors are variable.
Gestation period. This is the production period for a particular
commodity. A shorter gestation period implies elastic longer gestation
period implies inelastic supply.
Mobility of factor inputs. The ease with which resources can be shifted from one industry to another. The greater the mobility of the inputs, the greater the elasticity of supply. Supply tends to be elastic. Inelastic supply is when factors tend to be immobile.
Ease of entry into the market — the number of firms. If there are
many firms, supply is elastic. Fewer numbers of firms implies inelastic
supply.
Availability of stocks. If the product can be stored without loss of
quality supply tends to be elastic. On the other hand, if the product
canno1 be stored or it is difficult to store, supply tends to be inelastic.
This is normally the case with agricultural products.
Costs of production. Supply tends to he inelastic if the costs of
production are high. If they are low, supply is elastic. If the firm is
subject to minor changes in costs as output changes, supply will tend to be more elastic. In case of LDCs, supply tends to be inelastic since costs of production are generally high.
Technology. Efficient technology implies elastic supply while
inefficient technology leads to inelastic supply. Still, supply in LDCs
tends to be inelastic because of the inefficient technology.
Availability of factor inputs. If there is excess capacity, supply tends to be elastic and if resources are scarce, supply tends to be inelastic.
Time period. This is an important factor influencing price elasticity of supply. In general, supply is more elastic in the long run than in the
short run.
The monetary period. In this case, it is impossible to expand the
supply and therefore supply is perfectly inelastic. In the short period, it is possible to expand the supply by using more of the variable factors.
However, the existence of fixed factors limits the scope for increased
output. Therefore, supply tends to be inelastic in the short run. It tends to the elastic in the long period during which all factors are variable.
Gestation period. This is the production period for a particular
commodity. A shorter gestation period implies elastic longer gestation
period implies inelastic supply.
Mobility of factor inputs. The ease with which resources can be shifted from one industry to another. The greater the mobility of the inputs, the greater the elasticity of supply. Supply tends to be elastic. Inelastic supply is when factors tend to be immobile.
Ease of entry into the market — the number of firms. If there are
many firms, supply is elastic. Fewer numbers of firms implies inelastic
supply.
Availability of stocks. If the product can be stored without loss of
quality supply tends to be elastic. On the other hand, if the product
canno1 be stored or it is difficult to store, supply tends to be inelastic.
This is normally the case with agricultural products.