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Managerial Economics - Supply Analysis

Elasticity of Supply - Supply Analysis

   Posted On :  28.05.2018 11:53 pm

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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