Question

Explain three factors which determine the elasticity of supply.

Answer 1

Factors determining the elasticity of supply:

1) Chances of shifting from production: The size or degree of response depends on how easily producers can shift the production of another product to the one whose price has increased. When the producers can easily shift from one product to another, it means the supply would be more price elastic.

2) Length of time: Producers cannot shift the production immediately because of a change in the price of other products within the short duration. However, it may be possible to do so over a period of time. Hence, supply tends to be relatively inelastic in the short run and relatively elastic in the long run.

3) Risk-taking: The elasticity of supply is determined based on the willingness of entrepreneurs to take risks. Supply is more elastic when entrepreneurs are willing to take the risk and inelastic when they hesitate to take the risk.