Looking for something?

Factors affecting Price Elaticity of Supply

Time: In the short run firms will only be able to increase input of labour to increase supply of commodities may not be able to increase the supply in response to the price change but  the supply change will be little because other factors of production may not be increased in the same proportion and may limit the supply. However, in the long run a firm will increase the input of all factors of production and thus the supply becomes more price elastic.

Availability of resources: If the economy already using most of its scarce resources then firms will find it difficult to employ more and so output will not be able to rise. The supply of most of goods and services will therefore be price inelastic.

Number of producers: More producers mean that the output can be increased more easily. Thus supply is more elastic.

Ease of storing stocks: If goods can be stocked with ease and have a long shelf life, the supply will be elastic, otherwise inelastic. For example perishable goods such as fresh flowers, vegetables have comparatively inelastic supply because it is difficult to store them for longer periods.

Increase in cost of production as compared to output: In cases where there is a significant increase in cost of production when output is increased, supply is inelastic. This is because suppliers will have to have to do a significant investment in order to increase the output. It will take time and some suppliers may be hesitant in doing so.

Improvement in Technology: In industries where there is a rapid improvement in technology, the PES of such goods will be more elastic as compared to industries where there is not much improvement in technology.

Stock of finished goods: In industries where there are high inventories/stocks of finished goods, the suppliers can easily supply more as the price rises. Thus, the PES for these goods will be elastic.

Visit our Shop on 













Joomla Module OT Testimonial powered by OmegaTheme.com