Question

(i) Indicate the degree of elasticity on the supply curves given below.
(ii) Explain three determinants of Elasticity of Supply.

Answer 1

(i) 1. Elastic supply
2. Unitary elastic supply.
(ii) Determinants of Elasticity of Supply:
Elasticity of supply depends upon a number of factors, some of which are as follows:
(1) Nature of cost of production: Elasticity of supply depends upon change in the cost of producing additional quantity of output. If an increase in output by the firms in an industry causes only a slight increases in their cost per unit or leads to decrease in cost per unit, we would expect supply to be fairly elastic. If, on the other hand, increase in supply leads to a large increase in cost of production, the supply would be relatively inelastic.
(2) Time element: Time period is an important determinant of elasticity of supply. Supply of a commodity, in the ultimate analysis, depends upon its production. A price change due to change in demand for a commodity may have a small response in the quantity supplied in the short-run since the production capacity may be limited.
(3) Nature of the commodity: Nature of the commodity is also an important determinant of the elasticity of supply. For instance, the supply of durable products is relatively elastic. Durable goods can be stores and hence producers can meet the market demand by running down their stocks.
4. Nature of inputs: Elasticity of supply depends on the nature of inputs used for the production of a commodity. If the production of a product requires inputs that are easily available, its supply would be more elastic. On the other hand, if it uses specialised inputs, its supply will be relatively inelastic.