Elasticity of supply - Business Environment

The concept of elasticity can be applied to supply as well as demand, and is a measurement of how responsive quantity supplied is to changes in the price of a good.
Figure illustrates two differently shaped supply curves and the effect of the same price change in each case.

Elasticity of supply =
% change in quantity supplied
% change in price


Responsiveness-of-supply to a price change

The higher the numerical value, the more responsive is supply to changes in price.

The main determinants of the elasticity of supply for a good are the nature of the production process and the time-scale in question. It may well be easier to increase the supply of manufactured goods than agricultural goods, given the nature of the production processes involved. Even agricultural goods can be increased in supply, given time to replant stock, so supply is more responsive to price changes in the longer time period.


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