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Determinants of Price elasticity of supply

Determinants of Price elasticity of supply


Supply is affected by numerous factors. Some of the major factors affecting price elasticity of supply are explained as follows:

1. Number of producers: If there are large numbers of producers in the market, then the supply is more elastic as the goods’ supply will be more and vice versa.

2. Shift in demand: It is quite easy to increase production if there is a shift in demand that makes the supply more elastic.

3. Variability of production: If the production of goods can be varied, supply becomes more elastic and if the production of goods is limited to few types, the supply will be less elastic.

4. Storability: When goods can be easily stored, the elastic response increases the supply of goods. More volume of goods can be supplied during the offseason.

5. Factor mobility: The supply curve is more elastic when it is easier to transfer resources and factors of production to the industry. This stimulates the volume of supply.

6. Cost reaction: If the cost of production increases slowly, the quantity supplied will increase rapidly. However, if the costs rise quickly, the production volume will decline which reduces the supply of the commodity.

7. Technology and innovation: If there is the addition of technology and innovation in the production, then the supply volume is more elastic.

8. Subsidies and taxes: If the government imposes high taxes, then the supply will decrease. The opposite happens when government provides subsidies to the consumers. Subsidy increases the elasticity of supply. The regulation and deregulation of the market and production by the government affect the supply.

9. Price expectations: If the producers expect a rise in price in the near future, they will reduce the supply. If they expect the price to fall in the near future, they will increase the supply at the current time.

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