Determinants of Price Elasticity of Supply || Theory of Consumer Behavior || Bcis Notes

Determinants of Price Elasticity of Supply || Theory of Consumer Behavior || Bcis Notes

Determinants 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 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.

(ii) Ability to store the output. The goods which can be safely 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 the 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 the 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 a 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 rising 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 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.

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