Factors Determining Elasticity of Supply

Several factors decide how elastic or inelastic the supply of a particular commodity turns out to be:

• Nature of the commodity. Perishable, non-storable goods (fresh produce) tend to have inelastic supply, since sellers cannot hold back stock to respond to price changes; durable, storable goods have more elastic supply.
• Time period. This is the single most important factor:
  • In the market period (the very short run), supply is fixed (perfectly inelastic, $E_s = 0$) — there simply is not enough time to produce more.
  • In the short run, supply can be raised somewhat by using existing capacity more intensively (overtime, extra shifts), so supply is moderately elastic.
  • In the long run, firms can expand capacity, install new machinery, or new firms can enter the industry — supply is at its most elastic.
• Cost behaviour / ease of increasing output. If output can be expanded without a sharp rise in marginal cost (spare capacity, easily available inputs), supply is more elastic; if marginal cost rises steeply with output, supply is less elastic.
• Availability of inputs/factors of production. Easy availability of raw material, labour, and capital allows output — and hence supply — to expand readily in response to a price rise.
• Number of producers. An industry with many producers able to enter or expand quickly tends to have more elastic supply than one with a few entrenched producers.
• Gestation period / natural constraints. Commodities that need a long biological or production gestation period (agricultural crops, plantation crops such as tea or rubber) have inelastic supply in the short run, however much price rises, because output cannot be raised until the next crop cycle. …