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Ramakant Sharma
Ramakant SharmaInk Innovator
Asked: March 15, 20242024-03-15T09:11:12+05:30 2024-03-15T09:11:12+05:30In: B.Com

What are the main determinants of Elasticity of Supply of a Commodity?

What are the primary factors that determine a commodity’s supply elasticity?

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    1. Abstract Classes Power Elite Author
      2024-03-15T09:11:39+05:30Added an answer on March 15, 2024 at 9:11 am

      The elasticity of supply of a commodity refers to the responsiveness of the quantity supplied of that commodity to changes in its price. Several factors determine the elasticity of supply:

      1. Time Horizon: The time available for producers to adjust their production levels in response to a change in price. In the short run, supply is usually inelastic as producers cannot easily change their production capacity. In the long run, supply becomes more elastic as producers can adjust their production capacity.

      2. Availability of Inputs: The ease with which producers can obtain the inputs necessary to produce the commodity. If inputs are readily available, supply is more elastic.

      3. Mobility of Factors of Production: The ease with which factors of production (such as labor and capital) can move between different uses or locations. Greater mobility leads to more elastic supply.

      4. Storage Facilities: The ability to store goods can affect supply elasticity. If storage is costly or difficult, supply may be less elastic.

      5. Nature of the Industry: Industries with high fixed costs and low variable costs tend to have more elastic supplies. Conversely, industries with low fixed costs and high variable costs tend to have less elastic supplies.

      6. Government Regulations: Regulations that restrict production or limit the entry of new firms can reduce the elasticity of supply.

      7. Expectations: Producers' expectations about future prices can affect their current supply decisions. If producers expect prices to rise in the future, they may withhold supply, making it less elastic in the short run.

      8. Number of Producers: In markets with many producers, supply is more likely to be elastic as individual producers have less influence over the market price.

      Overall, the elasticity of supply depends on the specific characteristics of the commodity and the market in which it is produced and sold.

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