Factors governing elasticity of supply:
1. Nature of the commodity:
Durable goods can be stored for a long time. So, the producers can wait until they get a high price. Once they get higher price, larger supply is possible.The elasticity of supply of durable goods is high. But perishables are to be sold immediately. So perishables have low elasticity of supply.
2. Cost of production:
When production is subject to either constant or increasing returns,
additional production and therefore
increased supply is possible. So
elasticity of supply is greater. Under
diminishing returns, increase in
output leads to high cost. So elasticity
of supply is less.
3. Technical condition:
In large scale production with huge capital investment, supply cannot be adjusted easily. So elasticity of supply is lesser. Where capital equipment is less and technology simple, the supply is more elastic.
4. Time factor:
During very short period when
supply cannot be adjusted, elasticity
of demand is very low. In short
period, variable factors can be added
and so supply can be adjusted to
some extent. So elasticity of supply
is more. In long period, even the
fixed factors can be added and hence
supply is highly elastic.
Production takes place with the view to fulfilling the demands of the consumers. Today consumption expands in a variety of ways.Hence, production has to necessarily expand
in size and improve in quality. Production should also help in the determination of the price of the factors so that the amount of the
income generated be appropriately spent on the factors of production.