Economics Elasticity Of Demand Questions Medium
The determinants of elasticity of supply are as follows:
1. Availability of inputs: The availability and ease of obtaining inputs required for production play a crucial role in determining the elasticity of supply. If inputs are readily available, suppliers can easily increase or decrease production in response to changes in price, resulting in a more elastic supply. Conversely, if inputs are scarce or difficult to obtain, suppliers may struggle to adjust production levels, leading to a less elastic supply.
2. Time horizon: The time period under consideration is another determinant of supply elasticity. In the short run, suppliers may find it challenging to adjust production levels due to fixed factors of production, such as capital and technology. Therefore, the supply tends to be inelastic in the short run. However, in the long run, firms have more flexibility to adjust their production processes, making the supply more elastic.
3. Production capacity: The production capacity of a firm or industry affects the elasticity of supply. If a firm has excess production capacity, it can quickly increase output in response to changes in price, resulting in a more elastic supply. On the other hand, if a firm is operating at full capacity, it may have limited ability to increase production, leading to a less elastic supply.
4. Mobility of resources: The ease with which resources can be reallocated from one use to another also influences supply elasticity. If resources can be easily shifted between different industries or regions, suppliers can respond quickly to changes in price, making the supply more elastic. However, if resources are immobile or specialized, it becomes more difficult for suppliers to adjust production, resulting in a less elastic supply.
5. Spare capacity in the industry: The presence of spare capacity within an industry affects the elasticity of supply. If there is significant spare capacity, firms can increase production without incurring substantial additional costs, leading to a more elastic supply. Conversely, if the industry is operating near or at full capacity, firms may face constraints in expanding output, resulting in a less elastic supply.
Overall, these determinants collectively influence the responsiveness of suppliers to changes in price, thereby determining the elasticity of supply in a particular market.