(a) What is elasticity of supply? (b) when is supply elastic? (c) Explain any four factors that influence elasticity of supply.

Answer Details

(a) Elasticity of supply. Price elasticity of supply measures the degree of responsiveness of the quantity supplied of a good to a change in its price. It is calculated as:

\[ E_s = \frac{\%\ \text{change in quantity supplied}}{\%\ \text{change in price}} \]

(b) When supply is elastic. Supply is elastic when \( E_s > 1 \), that is, when a given percentage change in price brings about a more than proportionate percentage change in the quantity supplied. For example, a \( 10\% \) rise in price that causes a \( 25\% \) rise in quantity supplied is elastic.

(c) Four factors influencing elasticity of supply.

1. Time period. The longer the time available, the more producers can adjust output, so supply is more elastic in the long run than in the short run.
2. Ease of storage. Goods that can be stored cheaply and without spoiling have more elastic supply, because stocks can be released quickly when price rises; perishables are inelastic.
3. Availability and mobility of factors of production. If labour, raw materials and capital can be obtained and shifted easily, output can be raised quickly and supply is elastic.
4. Nature of the good and production technique. Manufactured goods whose output can be expanded quickly are elastic in supply, while agricultural goods with long gestation periods are inelastic.

Cost of expanding production and the number of firms in the industry are also acceptable factors.

Examination reminder: distinguish elastic supply (\( E_s>1 \)) clearly from the special cases of unit elastic (\( E_s=1 \)) and inelastic (\( E_s<1 \)) supply.