Elasticity of supply is defined as a measure of the degree of responsiveness of the quantity supplied
of a commodity to changes in price.
Because of the direct relationship between price and quantity supplied (according to the law of supply), price elasticity of supply ranges from zero to infinity.
Factors affecting elasticity of supply:
1. The adjustment time: Given that it takes time for firms to adjust the quantities they produce, the
supply is likely to be more elastic the longer the period of time under consideration. In the
momentary period, supply cannot be increased even if there is a substantial rise in price. In the
short-run, supply can be increased by employing more variable factors of production. In the longrun,
the quantities of all factors of production can be increased.
2. The availability of spare capacity: If fixed factors of production are being used to the fullest extent,
however great the increase in price, the supply will be inelastic. If however, a firm is operating below
capacity and there are unemployed resources, supply will be elastic.
3. The level of unsold stocks: If suppliers are holding large stocks, supply will be elastic and an increase
in demand can be met by running down stocks. If on the other hand stocks are depleted it may be
difficult to increase output and supply will then be inelastic. It follows therefore that the higher the
level of unsold stocks the more elastic will be the supply.
4. The ease with which resources can be shifted from one industry to another, that is, factor mobility:
in both the short and long run, in the absence of excess capacity and unsold stocks, an increase in
supply necessitates the shifting of factors of production from one use to another. This may be costly
because the prices of factors may have to be raised to attract them to move and because of barriers
to the mobility of labor.
5. The availability of variable factors of production: If variable factors of production are not easily
available, then supply will be inelastic even if the firm has spare capacity in its fixed factors of
production. A firm should be able to employ variable factors of production easily and combine these
with spare fixed factors that are available before the supply becomes elastic.
Wilfykil answered the question on
February 4, 2019 at 12:38