The elasticity of supply is the relative measure of the degree of responsiveness of quantity supplied of a commodity to a change in its price.
The, greater the responsiveness of quantity supplied of a commodity to the change in its price, the greater is its elasticity of supply. To be more precise, the elasticity of supply is defined as a percentage change in the quantity supplied of a product divided by the percentage change in price. It may be noted that the elasticity of supply has a positive sign because of the direction of change (positive slope). However, it may vary between zero and infinity.
The four determinants of Elasticity of Supply are:
1. Ability to store Output: The goods which can be safely stored have relatively elastic supply over the goods which are perishable and do not have storage facilities.
2. Factor Mobility: If the factors of production can be easily moved from one use to another, it will affect elasticity of supply. The higher the mobility of factors, the greater is the elasticity of supply of the goods mid vice versa.
3. Excess Supply: When there is excess capacity and the producer can increase output easily to take advantage of the rising prices, the supply is more elastic. In case the production is already up to the maximum from the existing resources, the rising prices will not affect supply. The supply will be more inelastic.
4. Cost Relationships: If costs rise rapidly as output is increased, then any increase in profitability caused by a rise in the price of the good is balanced by increased costs as supply increases. If this is so, supply will be relatively inelastic. On the other hand, if costs rise slowly as output increases, supply is likely to be relatively elastic.