Determinants/Factors of Price
Elasticity of Supply:
The main
determinants/factors which determine the degree of price elasticity of supply are as under:
(i) Time
period. 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 adjustment 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.
(ii)
Ability to store output. The goods which can be safety stored have
relatively elastic supply over the goods which are perishable and do not have
storage facilities.
(iii) Factor mobility. If the factors of
production can be easily moved from one use to another, it will affect
elasticity of supply. The higher the mobility of
factors, the greater is the elasticity of supply of
the good and vice versa.
(iv)
Changes in marginal cost of production. 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.
(v)
Excess supply. 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 the short period. The supply will be more
inelastic.
(vi)
Availability of infrastructure facilities. If infrastructure facilities are
available for expanding output of a particular good in response to the rise in
prices, the elasticity of supply will be relatively more elastic.
(vii)
Agricultural or industrial products. In agriculture, time is required to
increase output in response to rise in 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 case
of supply of aero planes or any other heavy machinery, the supply is relatively
inelastic as it takes time to manufacture heavy machinery.
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