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Price elasticity of supply

What Are the Major Determinants of Price Elasticity of Demand?

❶It is important to note that elasticity and slope are, for the most part, unrelated. If there is an increase in the amount of producers, the supply of the goods and services can be increased more easily.

What Is Price Elasticity?

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SS 1 curve of Fig. Here quantity supplied changes by a larger magnitude than does price. Supply is said to be inelastic when a given percentage change in price causes a smaller change in quantity supplied. Here the numerical value of elasticity of supply is greater than zero but less than one.

If price and quantity supplied change by the same magnitude, then we have unit elasticity of supply. Any straight line supply Curve passing through the origin, such as the one shown in Fig. This can be verified in this way. The numerical value of elasticity of supply, in exceptional cases, may reach up to infinity. The supply curve PS 1 drawn in Fig. Here the supply curve has been drawn parallel to the horizontal axis. If price slightly drops down below OS, nothing will be supplied.

Another extreme is the completely or perfectly inelastic supply or zero elasticity. SS 1 curve drawn in Fig. This curve describes that whatever the price of the commodity, it may even be zero, quantity supplied remains unchanged at OQ. This sort of supply curve is conceived when we consider the supply curve of land from the viewpoint of a country, or the world as a whole.

One important point to note here. Any straight line supply curve that intersects the vertical axis above the origin has an elasticity of supply greater than one Fig. Elasticity of supply will be less than one if the straight line supply curve cuts the horizontal axis on any point to the right of the origin, i. Here we will measure the elasticity of supply at a particular point on a given supply curve.

This is shown in Fig. As these two points lie very close to each other, the slope of the supply curve as well as the slope of the NT line is the same. If the NT straight line passes through the origin, the elasticity of supply becomes unity and if it passes through the price or vertical axis, the coefficient will be greater than one, i.

Here we are concerned with certain factors which affect elasticity of supply viz. As with demand elasticity, the most important determinant of elasticity of supply is the availability of substitutes.

In the context of supply, substitute goods are those to which factors of production can most easily be transferred. For example, a farmer can easily move from growing wheat to producing jute.

Of course, mobility of factors is very important for such substitution. As a general rule, the more easily the factors can be transferred from the production of one good to that of another, the greater will be the elasticity of supply. Since durable goods can be stored for a long time, its elasticity of supply is very high. But for non-durable goods and perishable goods elasticity of supply tends to be very low. As in the case of demand, elasticity of supply also depends on the definition of the commodity.

The narrowly a commodity is defined the greater is its elasticity of supply. Time also exerts considerable influence on the elasticity of supply. Supply is more elastic in the long run than in the short run. This article is missing information about calculations and equations, history, and effects. Please expand the article to include this information. Further details may exist on the talk page.

The Structure of American Industry 8th ed. Case, K; Fair, R Principles of Economics 5th ed. Retrieved 28 February Upper Saddle River, New Jersey Retrieved from " https: Articles to be expanded from November Views Read Edit View history. This page was last edited on 1 August , at By using this site, you agree to the Terms of Use and Privacy Policy.

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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.

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Determinants of Price Elasticity of Supply. A numeric value that measures the elasticity of a good when the price changes. -availability of materials - The limited availability of raw materials could limit the amount of a product that can be produced.

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Like price elasticity of demand, price elasticity of supply is also dependent on many factors. Some of these factors are within the control of the organization whereas others may be beyond their control. Regardless of the control, if the management has knowledge about these factors, it can manage its supply better. Elasticity of supply measures the degree of responsiveness of quantity supplied to a change in own price of the commodity. It is also defined as the percentage change in quantity supplied divided by percentage change in price.

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The first determinant of price elasticity of supply is the existence of spare capacity. If there is high unit of stock in a company, it is able to respond to the change in demand quickly by supplying the stock to the market without raising the price. Then, the supply will be elastic. This opening module of the Power of Markets course covers the basic assumptions about market participants made by economists, the concept of opportunity cost, and the key determinants of supply and demand. We will then learn how to use the supply-demand framework to explain and predict market.