Elasticity of Supply

Elasticity of Supply

There is only one type of identifiable elasticity of supply measuring the responsiveness of market supply to changes in the price of the product. The elasticity of supply, Es, is measured by using the formulae:
Es = Percentage change in quantity supplied
Percentage change in price
or Es = P × dQ/ Q × dP
Where P = original price, Q = original quantity supplied, dP = change in price, dQ = change in quantity supplied.
Because supply curves normally slope upward from left to right, elasticity of supply is usually positive.

Factors Influencing Elasticity of Supply

Time factor: There are three supply periods based on the time factor – the momentary period, the short period and the long period.
In the momentary time period, the supply of tomatoes is fixed, i.e., the elasticity of supply is zero. For example, on any particular day growers send a certain quantity of tomatoes to the market and no matter what happens to price, supply cannot be varied on that day.
In the short run, tomato growers can increase their use of variable factors (water, fertilizers, labour) in order to exploit their fixed factors more intensively. They can increase the temperature of their greenhouses and boost production. The supply curve for tomatoes is thus more elastic in the short run than in the momentary period.
In the long run, all factors are variable and so supply is more elastic than in the short run.
Ability to store the product: Products which can be stored for longer periods are more able to react to price rises by releasing stocks or to price falls by building up stocks.
Barriers to entry: Some industries restrict the entry of new firms into the market and this influences the responsiveness of supply to changes in price.
The behaviour of costs as output changes: If costs rise steeply as output rises so that there are heavy costs involved in purchasing extra factors of production, then this is likely to reduce the elasticity of supply of tomatoes.