Published by: Zaya
Published date: 15 Jun 2021
The main determinants/factors which determine the degree of price elasticity of supply are as under:
Time is the most significant factor which affects the elasticity of supply. If the price of a commodity rises and the producers have enough time to make adjustments in the level of output, the elasticity of supply will be more elastic. If the time period is short and the supply cannot be expanded after a price increase, the supply is relatively inelastic.
The goods which can be safely stored have a relatively elastic supply over the goods which are perishable and do not have storage facilities.
If the factors of production can be easily moved from one use to another, it will affect the elasticity of supply. The higher the mobility of factors, the greater is the elasticity of supply of the good and vice versa.
If with the expansion of output, marginal cost increases, and marginal return declines, the price elasticity of supply will be less elastic to that extent.
When there is excess capacity and the producer can increase output easily to take advantage of the rising prices, the supply is more elastic. In case the production is already up to the maximum from the existing resources, the rising prices will not affect supply in a short period. The supply will be more inelastic.
If infrastructure facilities are available for expanding the output of a particular good in response to the rise in prices, the elasticity of supply will be relatively more elastic.
In agriculture, time is required to increase output in response to the rising prices of goods. The supply of agricultural goods is fairly inelastic. As regards the supply of manufactured consumer goods, it is comparatively easy to increase production in a short period.
Therefore, the supply of consumer goods is fairly more elastic; In the case of the supply of airplanes or any other heavy machinery, the supply is relatively inelastic as it takes time to manufacture heavy machinery.