The Supply Elasticity

Elasticity of Supply

Definition of Elasticity:

Ever think of finding out the comparison level of two variable? Well, Elasticity is the best option. Elasticity refers to the measure of the sensitivity of one variable if the other changes. For example, Advertising elasticity is the relationship between the ad budget and the changes in sales volume.

Economists are often  interested in elasticity of demand and elasticity of supply.

The scenario of elasticity can be of three types mainly
1. When elasticity is greater than 1 i.e elastic situation
2. When elasticity is less than one i.e inelastic situation
3. When elasticity is equal to one i.e unitary elastic situation

Elasticity has various determinants which are as below

Elasticity is one of the prime factor to consider in managerial as well as business decision making.
It helps in deciding proper price, channeling the supply and handling the demand to make business successful.

Elasticity of Supply

The elasticity of supply is a measure of a company’s ability to increase or decrease production in response to a price change. It is also referred to as the price elasticity of supply.

Why it matters

Elasticity of supply tells us how fast supply responds to quantity demand and price increase. When there is a popular product that is in short supply for instance, the price may rise as a result. The manufacturers of that product will increase output (the supply) to keep up with the demand. The higher the elasticity of supply, the faster the supply will increase when demand and price increase. Some goods/services are more supply inelastic however, whenever there is a supply shortage. Limited tickets to a concert may have a very inelastic supply. The price of the concert tickets can be raised to any amount, but because there is a fixed number of seats and tickets, the supply (of tickets sold) may not be increased by much if at all.

Supply Determinants

• Flexibility of inputs

When you go to hotel, the most important person is chef. If chef is absent nothing will go, chef cant be replaced.

• Mobility of inputs

Theater group, they will be performing in different countries, different events. But the machineries are not easy to relocate.

• Durability

• Time

Drivers are elastic inputs but if you have a urgent meeting and that driver become unavailable for that time period that moment he cant be replaced.

• Ability to produce substitutes inputs

If anything can be substituted then inelastic goods is turned into elastic.