The elasticity of supply is influenced by a number of factors. It tells the Finance Minister that high taxes should be levied on those goods whose supply is inelastic. Enlarge supply curve S1S downward so that it meets X-Axis at point T. Our tutors are highly qualified and hold advanced degrees. Products where capacity can be easily added and reduced have an elastic supply whereas products where it is difficult to increase or decrease capacity have inelastic demand. As there is larger scope for enhancement in productivity in the long run than in the short run, the supply of a commodity is more elastic in the long run than in the short run. Thus, the demand for such products is said to be inelastic.
In other words, price has no influence on supply. In many cases, the time required for production stretches to many months or even years. Regardless of the control, if the management has knowledge about these factors, it can manage its supply better. This is shown in Fig. In contrast the supply of milk is price elastic because of a short time span from cows producing milk and products reaching the market place. Determinants of Elasticity of Demand Apart from the price, there are several other factors that influence the elasticity of demand. Our tutors can break down a complex Measurement of Elasticity of Supply at a Point on the Supply Curve problem into its sub parts and explain to you in detail how each step is performed.
The supplier also needs to consider whether or not the goods that they hold are perishable or not. Elasticity Determinants Some products are elastic buyers are price sensitive , and some products are inelastic buyers are not price sensitive. So the elasticity of supply equals 2. Whereas in the long-run, supply being more elastic, it plays an active role in the determination of price. Methods of Measuring Elasticity of Supply : Apart from determining the elasticity or inelasticity of supply, an organization needs to estimate the numerical value of elasticity of supply for making various business decisions. This may be theoretically correct. Types of Elasticity of Supply : For all the commodities, the value of E s cannot be uniform.
In short-run, elasticity of supply is low while in the long run elasticity of supply is more. Thus, elasticity of supply explains whether factors of production are in a position to earn more than what they are getting in the form of rent, wages, interest, profit and salary. Relatively Elastic Supply: Refers to a condition when the proportionate change in the quantity supplied is more than proportionate change in the price of a product. Here is a list of determinants which generally affect the price elasticity of supply in the market: Capacity Addition: The theoretical model stated in the law of supply simply assumes that supply will be able to adjust up and down as and when the price changes. On the other hand, if specialized factors are used which are not easily available , supply will be less elastic.
Our tutors have many years of industry experience and have had years of experience providing Elasticity of Supply and Its Function Homework Help. In addition to that, complex products usually take longer to produce which also contributes to more inelastic supply. Consider for instance the fact that most manufactured goods today are mass produced in massive factories and most of these factories are working to their optimum levels. Scale of Production: Puts a significant impact on the elasticity of supply. This gives us a general property of a straight line supply curve starting from X-axis has price elasticity less than one on all points.
Thus the supply of a commodity responds more, or is more elastic if a long time period is taken into account. However, after two years, they have the ability to move closer to work or school, arrange carpools, use public transportation, or buy a more fuel-efficient car. Perfectly Elastic Supply: When without any change in price, supply may change to any extent, then the supply is perfectly elastic. On the contrary, in case of durable goods, such as furniture and electric appliances, the supply would be elastic as their supply can be increased or decreased quickly. More accurately the elasticity of supply can be defined as a percentage change in volume supplied of a commodity in response to a provided percentage variation in price of the commodity.
The demand for the necessities of life, such as food and clothing is inelastic as their demand cannot be postponed. Also, the lower range commodities have inelastic demand because these are already low priced and can be bought by any sections of the society. This is an important determinant of elasticity of supply. Natural Constraints: The elasticity of supply is also influenced by the natural constraints in the production of a commodity. The period of time under consideration.
It is necessary for a firm to know how quickly and effectively, it can respond to changing market conditions, especially to price changes. Factor Pricing and Elasticity of Supply: Modern theory of Rent states that a factor earns rent only if its supply is inelastic or less than perfectly elastic. As a result the quantity demanded changes proportionally more than the price. Meaning of Elasticity of Supply 2. The elasticity of supply is the degree of responsiveness of supply to variations in price of a commodity.
This shows that the proportionate change in quantity supplied is equal to the change in the price of product Y. However, in the long run, all the factors are variable and hence the supply of all products is completely elastic. Solution: The supply curve for product Y is shown in Figure-18: In Figure-18, when the price of product Y is Rs. Consequently, most of the burden of the tax is born by the consumers. In simple words, if the price of a product increases, the quantity supplied for the product also increases.
Only as people make larger incomes, they will have more disposable income to spend on these goods. For example, if an organization has a large scale production of soaps, then an increase in the price of soaps would increase the supply of soaps without any time lag. The degree or extent of change in the quantity supplied of a product in response to change in the price of the product is known as the elasticity of supply. Related Infrastructure Growth: Industry is usually an interconnected supply chain. Thus, the second bottom diagram elasticity of supply at point A will be equal to unity. Perfectly Elastic Supply: Refers to a situation when the quantity supplied completely increases or decreases with respect to proportionate change in the price of a product. Example 7: The quantity supplied and the price of product Y is shown in Table-12: Prepare a supply curve for the supply schedule of product Y and determine the type of elasticity of supply demonstrated by the supply curve.