Elasticity of supply of a commodity is defined as the responsiveness of a quantity supplied to a unit change in price of that commodity.
Elasticity
of Supply
Elasticity of supply of a
commodity is defined as the
responsiveness of a quantity supplied to a unit change in price of that
commodity.
Kinds Of Supply Elasticity
Price elasticity of supply: Price elasticity of supply measures the responsiveness of changes in quantity supplied to a change in
price. Perfectly inelastic: If there is no response in supply to a change in price. (Es = 0)
Inelastic supply: The proportionate change in supply is less than the change in price (Es =0-1) Unitary elastic: The percentage change in quantity supplied equals the change in price (Es=1) Elastic: The change in quantity supplied is more than the change in price (Ex= 1- ∞) Perfectly elastic: Suppliers are willing to supply any amount at a given price (Es=∞)
The major determinants of elasticity
of supply are availability of substitutes in the market and the time period,
Shorter the period higher will be the elasticity. Factors
Influencing Elasticity Of Supply
1.
Nature of the commodity: If the commodity is perishable in nature then the elasticity of supply
will be less. Durable goods have high elasticity of supply. 2.
Time period: If the operational time period is short then supply is inelastic. When
the the production process period is longer the elasticity of supply will be
relatively elastic. 3.
Scale of production: Small scale producer’s supply is inelastic in nature compared to the
large producers. 4.
Size of the firm and number of
products: If the firm is a large scale
industry and has more variety of products then it can easily transfer the
resources. Therefore supply of such products is highly elastic. 5.
Natural factors: Natural calamities can affect the production of agricultural products
so they are relatively inelastic. 6.
Nature of production: If the commodities need more workmanship, or for artistic goods the
elasticity of supply will be high. Apart from the above mentioned factors future
expectations of the market, natural resources of the country and government
controls can also play a role in determining supply of a good. In the long run,
supply is affected by cost of production. If costs are rising, some of the
existing producers may with draw from the field and new entrepreneurs may be
scared of entering the field.
Tags : Managerial Economics - Supply Analysis
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