The elasticity of demand for the product produced: A rise in wages increases costs of production which, in turn, raise the price of the product. It can be concluded that. The availability of close substitutes. It refers to how the amount supplied of a good or service changes in response to a price or factor change. Thus increase in number of sellers will increase supply and shift the supply curve rightwards whereas decrease in number of sellers will decrease the supply and shift the supply curve leftwards. When factors other than price changes, supply curve will shift.
The railroad argued that declining revenues made this rate increase essential. Measurement of Elasticity of Supply : Here we will measure the elasticity of supply at a particular point on a given supply curve. An employer may have to raise the wage rate quite significantly to attract more workers and encourage the workers employed in other occupations to switch jobs. When there is innovation in technology, it leads to efficiency in the production of goods or services. Here the supply curve has been drawn parallel to the horizontal axis.
This influences the marginal cost of production. There are several factors that affect the supply elasticity of a good or service, such as the availability of resources, innovation of technology and the amount of producers. Short Run: In the short run, the supply of all products is more or less inelastic. For complements, an increase in the price of one of the goods will decrease demand for the complementary good. Elasticity of supply will be less than one if the straight line supply curve cuts the horizontal axis on any point to the right of the origin, i.
In the short run, diminishing marginal returns operates as some factors are fixed. In case of industrial goods the expansion of supply is inhibited by the shortage of power, fuel and the essential raw materials. The elasticity of supply measures the percentage change in supply due to a change in another factor. Not surprisingly, firms consider the costs of their inputs to production as well as the price of their output when making production decisions. The law of demand states that, all else being equal, the quantity demanded of an item decreases when the price increases and vice versa.
Before publishing your Articles on this site, please read the following pages: 1. In the graph below, the supply curve shifts leftward. Determinants of supply also known as factors affecting supply are the factors which influence the quantity of a product or service supplied. The supply of perishable goods is therefore highly elastic since whatever has been produced has to be disposed off at the earliest. However, in the long run, all the factors are variable and hence the supply of all products is completely elastic.
The degree of vocation: The stronger the attachment of workers to their jobs, the more inelastic supply tends to be in case of a decrease in wage rate. Hence, there is a lagging effect on supply. The goods which have close substitutes are said to have elastic demand. Such as the demand for the furniture can be postponed until the time its prices fall. Whereas foods and clothing are the items where an individual spends a major proportion of his income and therefore, if there is any change in the price of these items, the demand will get affected.
The equilibrium price, however, did not increase by 50 cents, because the demand curve is sloped at an angle. Since profit is a major incentive the producers supplying goods and services to a certain market will increase, the production of service or product when there is low production costs and vice versa. Under this situation, the numerical value of E s will be greater than one but less than infinity. The buyers can wait for some time and producers will have to lower the prices or take the losses that arise from wastage. So, if the related infrastructure is easily scalable, then the supply of such a product will be highly elastic or else it will be inelastic.
Elasticity and the Effect of a Tax Change on the Price of the Product If a government increases the sales tax on a product by 50 cents, does that mean that the equilibrium price of the product will increase by 50 cents? In reality, we have something called the economies of scale and diseconomies of scale. Whereas the demand for the luxury goods is said to be highly elastic because even with a slight change in its price the demand changes significantly. In case of manufacturers, when they expect the future price to increase, they will employ more resources to increase their output and this may increase current supply as well. In other words supply is indirectly proportional to resource prices. On the other hand in the long run the supply curve of a commodity is more elastic.