The following remains the significant factors which influence the elasticity of supply:
- Nature of Inputs or Factory Mobility.
- Natural Constraints.
- Risk Taking.
- Nature of the Commodity.
- Cost of Production.
- Time.
- Technique of Production.
Nature of Inputs or Factory Mobility:
The
elasticity of supply depends on the nature of inputs used for the
production of commodities. If the production of a product utilizes
inputs that are repeatedly used to produce other products, it will tend
to have a more elastic supply. On the other hand, if it uses specialized
inputs suited uniquely for its production, its supply will be
relatively inelastic. In the words of Lipsey, "The ease with which
factors of production can be moved from one use to another will affect
the elasticity of supply, the higher the factor mobility, the greater
will be the elasticity."
Natural Constraints:
The elasticity of supply is
also influenced by the natural constraints in the production of a
commodity. If we wish to produce more teak wood, it will take years of
the plantation before it becomes usable.
Risk Taking:
The
Elasticity of supply is influenced by the willingness of entrepreneurs
to assume risks. If entrepreneurs are willing to take risks, the supply
will be more elastic. On the other hand, if entrepreneurs hesitate to
take risks, the supply will be inelastic. This will be partly influenced
by the system of incentives and taxation. The high rate of taxation
will reduce the elasticity of supply. On the other hand, in case of a
steep rate of subsidies the supply will be more elastic.
Nature of the Commodity:
The
elasticity of supply is governed by the nature of the commodity.
Perishable commodities have inelastic supply because their supply cannot
be increased or decreased, even when the price changes. On the
contrary, the supply of durable goods is elastic, because their supply
can be increased or decreased as a result of an increase or decrease in
price.
Cost of Production:
The elasticity of
supply is also influenced by the cost of production. If production is
subject to the law of increasing costs, then the supply of such goods
will be inelastic. It is inconvenient to extend supply due to a rise in
price because addition to supply means a rise in the cost. On the
contrary, if production obeys the law of decreasing costs, then its
supply will be elastic.
Time:
The elasticity
of supply is also influenced by time. The longer the time period
greater will be elasticity of supply. On the other hand, the shorter the
time period, the smaller will be elasticity of supply, because it is
not possible to change the supply of the goods in a short period. In
analyzing the impact of time upon the elasticity of supply, Economists
find it useful to distinguish between:
- Very Short Period: In a remarkably short period, there is insufficient time to change the output. So the supply is perfectly inelastic.
- Short period: In a short period, the plant capacity is fixed, but the output can be altered by changing the intensity of its use, supply is therefore relatively more elastic.
- Long Period: In the prolonged period, all desired adjustments including changes in plant capacity can be made, and supply becomes still more elastic.
Technique of Production:
If
the production technique of a commodity is relatively complex and needs
a large stock of capital, then the supply of that commodity will be
inelastic because supply will not be amenable to change easily due to
change in price. On the other hand, goods involving simple techniques of
production will have an elastic supply.
No comments:
Post a Comment