Degree of responsiveness in the quality supplied due to a given change in price is known as elasticity of supply, when a small rise in price brings about a greater change in supply (both extension or contraction) it is said, that supply is elastic on the other hand when a greater change in price results a smaller change in supply, the supply is said to be inelastic.
1. Perishable goods like fruit and vegetables have low elasticity of supply while the stable goods like cloth and shoes have high elasticity.
2. Goods produced at higher cost of production like machinery and car always have a low elasticity. Supply of such goods cannot be increased even at higher prices.
3. Nature dominated sectors agriculture always have a low elasticity while the sectors where man plays the vital and dominant role, the elasticity is quite high there.
4. In case where technique of production is quite complicated, extension there is not so easy whereas in the simple technique supply can be extended and contracted very easily and thus the elasticity is high.
5. Goods produced under the law of increasing return command high elasticity where as the operation of the law of decreasing return does not allow free extension and thus the elasticity is low.
6. Goods which can be easily and quickly made tend to have elastic supply and where fairly long time is required the elasticity is low.
Determinants of Elasticity of Supply
If due to full utilization of the internal and external economies the cost falls the supply will rise as it is profitable for producers to increase the supply. The supply decreases when the cost rises.
If due to innovations, research and experiments, some new technology is evolved which causes the reduction in cost, the supply will definitely increase. In the reverse case the supply will decrease.
Any discovery of raw material or the improvement and development in the means of transport and communication will surely causes the increase in supply while in the opposite case supply decreases.
Monetary, fiscal, commercial, income and price policies of government not only regulate the economy but also accelerate the pace of economic development. It consequently increases Gross National Product (GNP) and raises the level of employment and standard of living of people.
Stable political conditions, maintenance of internal law and order and security against foreign aggression set the stone rolling and bring about great change in the supply market.
Measurement of Elasticity of Supply
Like demand, the elasticity of supply can be measured in terms of unity.
(i) Equal to Unity: If the percentage in price is equal to the percentage change in supply, the elasticity of supply is said to be equal to unity.
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