# What determines elasticity of supply. Factors that Affect Elasticity of Supply 2019-03-06

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## How to Calculate Elasticity of Supply

Some of the more important factors are the price of the good or service, the price of other goods and services, the income of the population or person and the preferences of the consumers. But what about picking up the low hanging fruits and selling them immediately such as strawberries in your local fair. Your demand for gasoline is relatively elastic. In the long run firms can enter or leave the industry. On the other hand less durable or perishable goods are consumed repeatedly.

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## What are the factors that determines the elasticity of supply of a commodity?

It is the proportional change of the value in one variable relative to the proportional change in the value of another variable. The business may wait until demand is even higher so that the costs of the inputs are outweighed by the price increase. Necessary goods are extremely essential so the demand for these goods-is inelastic. Similarly, the demand for common salt is inelastic, partly because consumers do not use it alone but along with other things. Thus for rich people the demand for Horlicks is inelastic whereas for poor people the demand for the Horlicks is elastic. For instance, if the price of fuel oil rises, it may be difficult to substitute fuel oil by other types of fuels such as coal or cooking gas.

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## Look at These Prices!: What Determines Elasticity?

Price changes don't have a big effect on the quantity demanded. Determine the original supply and the current supply and the original price and the current price. The Availability of Substitutes 2. Price elasticity of demand The price elasticity of demand is the proportional change in the quantity demanded, relative to the proportional change in the price of the good. Thus if price rises from P 0 to P 1 the same quantity will be offered for sale. So why would the consumer choose X? The supply of most goods and services will therefore be price inelastic, and vice versa.

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## Types of Elasticity

When suppliers are more responsive, they will change the quantity they supply by a greater amount in response to a small change in price. Understanding each factor will help business owners, managerial strategists, and stock projectors make more productive supply decisions. The Number of Uses of a Commodity: The greater the number of uses to which a commodity can be put, the greater will be its price elasticity of demand. The greater the possibility of substitution, the greater the price elasticity of demand for it. Thus, the demand for Coca Cola is elastic. An elastic good's price will change as the price changes.

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## 9 factors that determines the elasticity of demand

Businesses will not be able to increase the supply of cinnamon buns as quickly because one of the inputs is scarce. Well, some might continue to buy aspirin X out of habit or brand loyalty, but many very probably would not. They are to be satisfied first. In the momentary period supply is fixed and E s is zero. Both can be used in absence of another. So supply will be more elastic in the long run than in the short run because producers take some time to adjust their capacity to changes in demand. If for a commodity good substitutes are not available, people will have to buy it even when its price rises, and therefore its demand would tend to be inelastic.

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## Price Elasticity of Supply

So supply becomes relatively inelastic. On the other hand, if you commute from your home in one suburb to an office campus in a distant suburb, your transportation options may be quite limited. However, to increase production, several specially trained chemists need to be hired as more lenses are produced. Goods may be necessary for human life, comfort or luxurious. Now, if the price of lubricating oil goes up, it will mean a very small increase in the total cost of running the automobile, since the use of oil is much less as compared to other things such as petrol. This is because consumers can substitute goods in the long run. Thus the elasticity of demand for such commodities is elastic.

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## Labour Supply

On the other hand, if the price of Coca Cola falls, many consumers will change from other cold drinks to Coca Cola. Otherwise the goods will be inelastic. Supply is going to be inelastic at first because it takes a great deal of time to grow more pumpkins. Households are generally less sensitive to the changes in prices of goods that are complementary with each other or which are jointly used as compared to those goods which have independent demand or used alone. If, for example, the marginal rates of tax are very high, a price rise will not evoke much response among producers. Price goes down - less effort from you. To order this book direct from the publisher, visit the or call 1-800-253-6476.

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## Price Elasticity of Supply

A simple example will make the point clear. In other words goods having alternative uses are elastic. The greater the possibility of shifting of resources to the potato cultivation, the greater is the elasticity of supply of potato. Inelastic curves are very straight up and down. When a farmer does not have the ability to house cattle, there is no way to stock the cows until the price of beef increases again. For example with a rise in price of Horlicks, poor people by other milk powder relatively cheaper than Horlicks. However, any individual consumer's demand for gasoline can be elastic or inelastic, depending on their access to a substitute.

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## 9 factors that determines the elasticity of demand

On the other hand, if production capacity is severely limited, as in gold mines, then even a very large increase in price of gold will lead to a very small increase in production. She may find a job or start a business closer to home, or start a home-based business. On the other hand, if price of cloth rises many households will not afford to buy as much quantity of cloth as before, and therefore, the quantity demanded of cloth will fall. If cinnamon was readily available, supply might be elastic. He may not raise supply in response to the rise in price. You can also purchase this book at and.

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## What determines the price elasticity of supply for a good or service?

Inelastic being unable to change. For example, for the running of auto­mobiles, besides petrol, lubricating oil is also used. The higher the mobility of factor services, the greater will be elasticity. Conse­quently more candle factories are likely to be built in the long run, in which case the quantity supplied will increase from Q 0 to Q 2 when the price rises. The quantity supplied of a commodity will not change if the producers do not react positively to the increase in prices. A very low price elasticity implies just the opposite, that changes in price have little influence on supply.

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