Factors Affecting the Elasticity of Supply | Economics

The following points highlight the five main factors affecting the elasticity of supply. The factors are: 1. Price of the Good 2. Probability that the Price would Change in Future 3. Conditions Regarding Cost of Production 4. Nature of the Good 5. Length of Time.

Factors # 1. Price of the Good:

The supply and elasticity of supply of a good depend upon the price of the good. If the price of a good increases or decreases, the quantity supplied of it will also increase or decrease, respectively. This is the law of supply. Also the coefficient of price-elasticity of supply (E_S) will depend on the price of the good. E_S may be greater than, less than, or equal to one, depending on the price.

Factors # 2. Probability that the Price would Change in Future:

If the sellers think that the price of the good will increase (or decrease) in near future, then, at any particular price at present, they would want to decrease (or increase) their supply. In this case, the supply curve for the good would shift to the left (or to the right).

Factors # 3. Conditions Regarding Cost of Production:

If the cost of production of a good increases (or decreases), i.e., if its cost curve shifts upwards (or downwards), then the quantity supplied of the good would decrease (or increase) at any particular price, i.e., the supply curve would shift to the left (or to the right).

Now, the cost of production of a good depends on the quantity and availability of factor inputs, on the method of production and also on the business organisation methods. Again, the elasticity of supply of a good depends on the nature of its cost of production.

If the cost of production rises at a relatively faster rate as the quantity produced increases, then the supply would increase at a slower rate in response to an increase in price. In this case, E_s would be relatively small.

However, if the cost of production rises at a relatively slower rate as production increases, the supply would increase at a relatively faster rate in response to an increase in price. In this case, E_s would be relatively large.

Factors # 4. Nature of the Good:

The supply of a good depends upon the nature of the good, e.g., on the perishability and lumpiness of the good. The more the perishability or lumpiness of the good, the more would be its market localised, and, in a localised market, the supply of a good at any particular price would be relatively small.

Factors # 5. Length of Time:

If the price of a good rises, then by how much would supply rise, or, how large will be the price-elasticity of supply, would depend on the length of time available for the necessary adjustments (e.g., in the quantities of the factor inputs used) to complete. That is why, the elasticity of supply in the long-period market would be larger than that in the short-period market.