Factors determine the price elasticity of supply, Microeconomics

Factors determine the price elasticity of supply:

The price elasticity of supply varies widely across different products. Some products have more leastic supply, while others have less elastic supply. The major factors that determine price elasticity of supply are:

(i)The Availability and Mobility of Factors of Production
 
If factors of production are available then supply response quickly and largely to a change in the price of a product (i.e. supply then tends to be more elastic), but less elastic (inelastic) when factors of production are not available. The more easily factors can be transferred from the production of one good to that of another, the greater the elasticity of supply.

(ii)Influence of the weather

If output is controlled by weather conditions, as in the case of agriculture products, the output cannot be controlled by the producer. Hence the supply of such product tends to be less elastic (inelastic).

(iii)The Level of Technology

The extend to which output can be increased depends on the level of technology employed by the producer. Advanced technology used in production tends to make the supply of a product more elastic.

(vi)Cost of production

If the cost involved the production of a product is very high, output cannot be easily increased when the market price increases unless the icrease in price is great enough to absorb the cost.

(vii)Degree of perishability

The supply of highly a perishable commodity is relatively inelastic and that of a less perishable commodity is relatively elastic. The explanation is that highly perishable goods cannot be stocked for longer period to be relased when price for instance rises.

(viii)Time (Gestation Period)

Supply elasticity tends to be greater in the longer period. The longer the period, the easier it is to shift factors of production among products, following a change in their relative prices. This holds for agricultural products, becasue of the natural time lag between planting and harvesting of crops. In the short-run, the supply of most products tends to be relatively inelastic.

Posted Date: 1/2/2013 7:08:02 AM | Location : United States







Related Discussions:- Factors determine the price elasticity of supply, Assignment Help, Ask Question on Factors determine the price elasticity of supply, Get Answer, Expert's Help, Factors determine the price elasticity of supply Discussions

Write discussion on Factors determine the price elasticity of supply
Your posts are moderated
Related Questions

Disadvantages of division of labour: Division of labour may also have disadvantages that may include the following: (i) Lack of Craftsmanship Division of labour does not m


For the following assume that b=.95 1, If the economy is short of the full employment level by 1.5 trillion, what could be done in the simple Keynesian cross model to fill the ga

Define the concept of cross elasticity of demand

can you help me figure out how to create a graph with little or no information


Stock of durable goods on hand: If the economy has enjoyed an extended period of prosperity, consumers may find themselves well supplied with various durable goods, e.g. cars,

law of diminishing marginal returns does not hold then output of the world can be produced in a flower pot. Explain?

Liberalisation of the Economy: Removal of Industrial Licensing: All industrial licensing was abolished but for a shortlist of 18 industries related to security and strategic