Elasticity of Supply

Elasiticity of supply measures the responsieness of the quantity supplied to changes in price.

Elasiticity of supply= % change in quantity supplied /%change in price (%∆Qs / %∆P).

Determinants:

• Availability of substitutes for resources inputs: If the resources inputs are rare and unique, the elasticity is lower.
• Length of the production process: if the producer can change the supply quickly (eg electricity), momentary supply is elastic, otherwise it is inelastic (eg orange).
• Production spare capacity: More spare capacity, more ability to increase the supply and thus the elasticity.
• Storage capacity of the merchants: Higher level of stocks gives more flexibility and higher elasticity.
• Time elapsed since price change: Supply is normally more elastic in the long run than in the short run for produced goods as spare capacity and more capital equipment can be utilised in long run while only labor can be increased in short run.
• Goods that have no labor component and are not produced are said to be "fixed" in supply and do not respond to price changes.