Factors governing elasticity of supply

Factors governing elasticity of supply

1. Nature of the commodity

Durable goods can be stored for a long time. So, the producers can wait until they get a high price. Once they get higher price, larger supply is possible. The elasticity of supply of durable goods is high. But perishables are to be sold immediately. So perishables have low elasticity of supply.

2. Cost of production

When production is subject to either constant or increasing returns, additional production and therefore increased supply is possible. So elasticity of supply is greater. Under diminishing returns, increase in output leads to high cost. So elasticity of supply is less.

3. Technical condition

In large scale production with huge capital investment, supply cannot be adjusted easily. So elasticity of supply is lesser. Where capital equipment is less and technology simple, the supply is more elastic.

4. Time factor

During very short period when supply cannot be adjusted, elasticity of demand is very low. In short period, variable factors can be added and so supply can be adjusted to some extent. So elasticity of supply is more. In long period, even the fixed factors can be added and hence supply is highly elastic.