(a) What is elasticity of supply?
(b) when is supply elastic?
(c) Explain any four factors that influence elasticity of supply.
Explanation
(a) Elasticity of supply is the degree of responsiveness of the quantity supplied of a commodity to a change in the price of the commodity.
OR \(\frac{% in Quantity Supplied}{% in Price}\)
(b) Supply is elastic when a certain percentage change in price leads to a greater percentage change in the quantity supplied OR When the coefficient of elasticity of supply is greater than one.
(c) Factors that influence elasticity of supply are:
(i) Availability of factors of production: Where factors are easily available, supply will be elastic and vice versa.
(ii) The higher the cost of production, the more inelastic the supply or vice versa.
(iii) Possibility of factor substitution. If the input required in producing a good have many substitutes, supply will be elastic. But if there are no substitutes supply Will be inelastic.
(iv) Production Time: Production takes time, the shorter the period it takes to produce a good the more elastic the supply. For products whose production time is long, supply will be inelastic in the short run.
(v) Number of different goods produced by the producers: Where the producer produces many goods the supply of any one good will be elastic. This is because when the price of a good changes the producer can easily increase the supply by diverting resources to it or decrease the supply by taking resources away from its production. Where the producer produces only one good supply will be inelastic.
(vi) Number of different markets in which the producer can sell: If he sells in many markets, the supply in any one market will be elastic since he can increase or decrease the supply in any of the markets.
(vii) Capacity utilization When producers have spare capacities supply will be elastic or vice versa
(viii) Durability of the product. Durable commodities tend to be more elastic than non-durable goods.
(ix) The ease of entry of new firms into the industry makes supply elastic. Restrictions of new firms make supply inelastic.