Elasticity of supply is an important concept in micro economics. By elasticity of supply we mean “the degree of responsiveness of quantity supplied to the change in the price of commodity”.
PES= Percentage change in the quantity supplied / Percentage change in the price
Percentage change in the quantity supplied = ∆S/S x 100
Percentage change in the price = ∆P/P x 100
Types of Elasticity of Supply:
Generally there are two types of elasticity which are defined as follows:
More Elastic Supply | E > 1:
If even a slightest change in the price of a good cause a major effect in its supply, then it will be called as more elastic supply.
Less Elastic Supply | E < 1:
In this type, a major change in the price of the good can only cause very little change in the supply of respective goods. This supply is regarded as less elastic supply.
Factors Influencing the Elasticity of Supply:
Following are the few factors which cause an effect on elasticity of supply.
Nature of Goods:
Nature of the good highly affects the supply. Such as perishable goods and the goods which can be stored have different elasticity of supply.
Time has also its effect on the supply of good. For example: short period supply etc.
Change in Production Technique:
The change in the production technique of the good can cause the supply of the good to increase or decrease.
Production Capacity of the Industry:
Production capacity can also affect the quantity supply of the product, larger the production capacity, the larger will be the quantity supplied.
Other factors such as restriction on imports and exports, backward means of transportations etc. can also affect the elasticity of supply.