FACTORS THAT DETERMINE ELASTICITY OF SUPPLY
elasticity of supply depends on the following factors
of price elasticity of supply is positive, because an increase in price is
likely to increase the quantity supplied to the market and vice versa. The
elasticity of supply depends on the following factors:
spare capacity a firm has - if there is plenty of spare capacity, the firm
should be able to increase output quite quickly without a rise in costs and
therefore supply will be elastic
of stocks or inventories - if stocks of raw materials, components and finished
products are high then the firm is able to respond to a change in demand
quickly by supplying these stocks onto the market - supply will be elastic
the sudden and dramatic increase in demand for petrol canisters during the
recent fuel shortage. Could manufacturers of cool-boxes or producers of other
types of canister have switched their production processes quickly and easily
to meet the high demand for fuel containers?
capital and labour resources are occupationally mobile then the elasticity of
supply for a product is likely to be higher than if capital equipment and labour
cannot easily be switched and the production process is fairly inflexible in
response to changes in the pattern of demand for goods and services.
likely to be more elastic, the longer the time period a firm has to adjust its production.
In the short run, the firm may not be able to change its factor inputs. In some
agricultural industries the supply is fixed and determined by planting
decisions made months before, and climatic conditions, which affect the
Economists sometimes refer
to the momentary time period - a time period that is short enough for supply to
be fixed i.e. supply cannot respond at all to a change in demand.