Factors Influencing Elasticity of Supply

The following remains the significant factors which influence the elasticity of supply:

1. Nature of Inputs or Factory Mobility.
2. Natural Constraints.
3. Risk Taking.
4. Nature of the Commodity.
5. Cost of Production.
6. Time.
7. 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.