Theory question 106
Elasticity(a) What is elasticity of supply?
(b) When is supply elastic?
(c) Explain any four factors that influence elasticity of supply.
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(a) Elasticity of supply is the degree of responsiveness of quantity supplied to a change in the price of the commodity (% change in quantity supplied ÷ % change in price).
(b) Supply is elastic when the percentage change in quantity supplied is greater than the percentage change in price (coefficient greater than 1).
(c) Any four: time (supply is more elastic in the long run); nature of the commodity/perishability; availability of spare capacity and stocks; cost and ease of moving factors of production; production period (farm goods take longer); ease of entry of new firms; government policy.
Elastic supply means a coefficient above 1.