Unit – 2: Demand and Supply
theory and their Elasticity
Law of Demand – Meaning, Assumptions and
Exceptions
Meaning:
Among
the many causal factors affecting demand, price is the most significant and the
price- quantity relationship called as the Law of Demand is stated as follows:
"The greater the amount to be sold, the smaller must be the price at which
it is offered in order that it may find purchasers, or in other words, the
amount demanded increases with a fall in price and diminishes with a rise in
price" (Alfred Marshall).
In simple words other things being
equal, quantity demanded will be more at a lower price than at higher price.
The law assumes that income, taste, fashion, prices of related goods, etc.
remain the same in a given period. The law indicates the inverse relation
between the price of a commodity and its quantity demanded in the market.
However, it should be remembered that the law is only an indicative and not a
quantitative statement. This means that it is not necessary that such variation
in demand be proportionate to the change in price.
Assumptions
to law of demand
The statement
of the law of demand, demonstrates that that this law operates only when all
other things remain constant. These are then the assumptions of the law of
demand. We can state the assumptions of the law of demand as follows:
1.
Income level should remain constant: The law of demand
operates only when the income level of the buyer remains constant. If the
income rises while the price of the commodity does not fall, it is quite likely
that the demand may increase.
2.
Tastes of the buyer should not alter: It often
happens that when tastes or fashions change people revise their preferences. As
a consequence, the demand for the commodity which goes down the preference
scale of the consumers declines even though its price does not change.
3.
Prices of other goods should remain constant:
Changes in the prices of other goods often affect the demand for a particular
commodity. Therefore, for the law of demand to operate it is imperative that
prices of other goods do not change.
4.
No new substitutes for the commodity: If some new
substitutes for a commodity appear in the market, its demand generally
declines. This is quite natural, because with the availability of new
substitutes some buyers will be attracted towards new products and the demand
for the older product will fall even though price remains unchanged. Hence, the
law of demand operates only when the market for a commodity is not threatened
by new substitutes.
5.
Price rise in future should not be expected:
If the buyers of a commodity expect that its price will rise in future they
raise its demand in response to an initial price rise which violates the law of
demand. Therefore, it is necessary that there must not be any expectations of
price rise in the future.
6.
Advertising expenditure should remain the same
If the advertising expenditure of a firm increases, the consumers may be
tempted to buy more of its product. Therefore, the advertising expenditure on
the good under consideration is taken to be constant.
Exceptions of the 'Law of Demand'
The law of
demand does not apply in every case and situation. The circumstances when the
law of demand becomes ineffective are known as exceptions of the law. Some of
these important exceptions are as under.
1.
Giffen goods: Some special varieties of inferior goods are termed as Giffen
goods. Cheaper varieties of this category like bajra, cheaper vegetable like
potato come under this category. Giffens’s Paradox describes a peculiar
experience in case of such inferior goods. When the price of an inferior
commodity declines, the consumer, instead of purchasing more, buys less of that
commodity and switches on to a superior commodity.
2.
Conspicuous Consumption: Conspicuous Consumption refers to
the consumption of those commodities which are bought as a matter of prestige.
Naturally with a fall in the price of such goods, there is no distinction in
buying the same. As a result the demand declines with a fall in the price of
such prestige goods. Gold, Diamond etc are the examples of such commodities.
3.
Conspicuous necessities: Certain things become the
necessities of modern life. So we have to purchase them despite their high
price. The demand for T.V. sets, automobiles and refrigerators etc. has not
gone down in spite of the increase in their price. So they are purchased
despite their rising price.
4.
Ignorance: A consumer’s ignorance is another factor that at times induces
him to purchase more of the commodity at a higher price. This is especially so
when the consumer is haunted by the phobia that a high-priced commodity is
better in quality than a low-priced one.
5.
Emergencies: Emergencies like war, famine etc. negate the operation of the law
of demand. At such times, households behave in an abnormal way. Households
accentuate scarcities and induce further price rises by making increased
purchases even at higher prices during such periods. During depression, on the
other hand, no fall in price is a sufficient inducement for consumers to demand
more.
6.
Future changes in prices: Households
also act speculators. When the prices are rising households tend to purchase
large quantities of the commodity out of the apprehension that prices may still
go up. When prices are expected to fall further, they wait to buy goods in
future at still lower prices.
7.
Change in fashion: A change in fashion and tastes
affects the market for a commodity. When a broad toe shoe replaces a narrow
toe, no amount of reduction in the price of the latter is sufficient to clear
the stocks.
DETERMINANTS OF
DEMAND
1. Price of a
commodity: Price of the commodity is the most important factor that determine
demand. An increase in price of a commodity leads to a reduction in demand and
a decrease in price leads to an increase in demand.
2. Price of
related goods: Demand for a commodity
depends on Price of related goods also. Related goods include both substitutes
and complementary goods.
Substitutes
are those goods which can be used one another or the goods with same use are
substitutes. e.g.:- tea and coffee. When price of tea falls demand for coffee
also falls. Because when price of tea falls people buy more tea and less
coffee.
Complementary
goods are those goods which can be used only jointly. e.g.: - car, petrol or
pen, ink. When price of a commodity raises demand for its complementary goods
falls. If x and y are complementary goods we cannot use x without y. When price
of x raises demand for x falls and y cannot be used without x and demand for y
also falls.
3. Income of
the consumer: Income of the consumer and demand for a commodity are positively
related. For normal goods when income increases demand also increases and vice
versa. But for inferior goods there is a negative relationship between income
and demand. So when income increases, demand decreases.
4. Taste and
Preferences of consumers: Taste and Preferences of consumers also brings out
changes in demand for a commodity. Tendency to imitate other fashions,
advertisements etc affect demand for a commodity. It change from person to
person, place to place and time to time.
5. Rate of
Interest: Higher will be demanded at lower rates of interest and lower will be
demanded at higher rate of interest.
6. Money
supply: Demand is positively related to money supply. If the supply of money
increases people will have more purchasing power and hence the demand will
increase and vice versa.
7. Business
condition: Demand will be high during boom period and low during depression.
8.
Distribution of income: Distribution income in the society also affects the
demand of commodity. If there is equal distribution of income demand for
necessary goods and comforts will be greater.
9. Government
policy: Government policy also affects the demand of commodities.
10.
Consumers’ expectations: Consumers’ expectation about a further rise or fall in
future price will affect the demand of a commodity. If consumers expect a rise
in the price of a commodity in the near future, they may purchase large
quantity even though there is some rise in the price. When the price of a
commodity decreases, people expect a further fall in price and postpone their
purchase.
INTRODUCTION – ELASTICITY OF DEMAND
Demand is
desire backed by willingness to pay and ability to pay i.e. a wish to have a
commodity does not become demand. A person wishing to have a commodity should
be willing to pay for it and should have ability to pay for it. Thus a desire
becomes demand if it is backed by willingness to pay and ability to pay. Demand
is meaningless unless it is stated with reference to a price.
Decisions
regarding what to produce, how to produce and for whom to produce are taken on
the basis of price signals coming from the market. The law of demand explains
inverse relationship between price and quantity demanded. When price falls
quantity demanded of that commodity will increase. The deficiency of law of
demand is removed by the concept of elasticity of demand.
MEANING AND DEFINITION
OF ELASTICITY OF
DEMAND
The term
elasticity was developed by Alfred Marshall, and is used to measure the
relationship between price and quantity demanded. The law states that the price
of a commodity falls, the quantity demanded of that commodity will increase,
i.e. it explains only the direction of change in demand and not the extent of
change. This deficiency is removed by the concept of elasticity of demand.
Elasticity
means responsiveness. Elasticity of demand refers to the responsiveness of
quantity demanded of a commodity to change in its price.
According to E.K. Estham, “Elasticity of demand is a measure of
the responsiveness of quantity demanded to a change in price”.
According to Muyers “Elasticity of demand is a measure of the
relative change in the amount purchased in response to any change in price or a
given demand curve”.
According to A.K. Cairncross “The elasticity of demand for a
commodity it is the rate at which quantity bought changes as the price
changes.”
TYPES OF ELASTICITY: These are three types of elasticity:-
a)
Price elasticity
b)
Income elasticity
Ø Zero
income elasticity
Ø Negative
income elasticity
Ø Positive
income elasticity
c)
Cross elasticity
Ø Advertisement
elasticity and
Ø Elasticity
of price expectation.
a) Price Elasticity: Price elasticity of demand may be
defined as the degree of responsiveness of quantity demanded of a commodity in
response to change in its price i.e. it measures how much a change in price of
a good affects demand for that good, all other factors remaining constant. It
is calculated by dividing the proportionate change in quantity demanded by the
proportionate change in price.
EP=
Proportionate change in quantity demanded/ Proportionate change in price
b) Income elasticity: Income elasticity of demand
measures how much a change in income affects demand for that commodity if the
price and other factors remains constant.
EY=
Proportionate change in quantity demanded/ Proportionate change in income
A product
with an income elasticity of more than one will experience a growth in demand
that is higher than growth in consumer’s income. Luxury goods tend to have
relatively high income elasticity. Low quality goods have negative income
elasticities, as people stop buying them when they can afford to.
There are
three types of income elasticity:
Zero income
elasticity – Here a change in income will have no effect of quantity
demanded. For example: - salt, matches, cigarettes.
Negative
income elasticity – Here an increase in income leads to a decrease in quantity
demanded. This happens in inferior goods.
Positive
income elasticity – In this an increase in income will leads to an increase in
quantity demanded. For most goods income elasticity is positive.
c) Cross elasticity: This measures the change in
demand for a commodity due to change in price of another commodity.
ED=
Percentage change in quantity demanded of commodity A/ Percentage change in
price of commodity B
If the goods
having substitutes the cross elasticity is positive i.e. an increase in the
price of X will result in an increase in sales of Y. If the goods are
complementary and increase in the price of one commodity will depress the
demand for the other. So cross elasticity will be negative. If the goods are
unrelated cross elasticity will be zero. Because however much the price of one
commodity increased demand for the other will not be affected by that increase.
There exist another two types of cross elasticity viz.
Ø Advertisement
elasticity and
Ø Elasticity
of price expectation.
Advertisement elasticity or
Promotional elasticity: The expenditure n advertisement
and other sales promotion activities does help in promoting sales, but not in
the same degree at all levels of the total sales. The concept of advertisement
elasticity is useful in determining the optimum level of advertisement
expenditure. It may be defined as, “the responsiveness of demand t to changes
in advertising or other promotional expenses”.
|
EA =
|
Elasticity of price expectations: The
price expectation elasticity refers to the expected change in future price as a
result of change in current price of a product.
|
ex
=
|
|
x
|
|
==
|
rpc/pc rpc pf
Where Pc and
Pf are current and future price. The coefficient ex gives the measure of
expected percentage change in future price as a result of 1 percent change in
present price. If ex > 1 it indicates the future change in price will be
greater than the present change in price. If ex=1, it indicates that the future
change in price will be equal to the change in current price. In ex > 1, the
sellers will sell more in the future at higher prices.
VARIOUS DEGREES OF ELASTICITY
Since the
responsiveness of quantity demanded varies from commodity to commodity and from
market to market, it is important to study the degrees of price elasticity. We
can identify five degrees of elasticity. They are: -
1.
Perfectly elastic demand
2.
Perfectly inelastic demand
3.
Unitary elastic demand
4.
Relatively elastic demand
5.
Relatively inelastic demand
1. Perfectly
elastic demand: Perfectly elastic demand is the situation where a small change
in price causes a substantial change in quantity demanded i.e. a slight decline
in price causes an infinite increase in quantity demanded and a slight increase
in price leads to demand contracting to zero. The demand is hypersensitive and
the elasticity of demand is infinite.
2. Perfectly
inelastic demand: It is the situation where changes in price cause no change in
quantity demanded. Quantity demanded is non-responsive or inelastic.
3. Unitary
elastic demand: It refers to that situation where a given proportionate change
in price is accompanied by an equally proportionate change in quantity
demanded. For example, if price changes by 10%, quantity demanded also changes
by 10%. \
ep= 10/10 = 1
4. Relatively
elastic demand: Demand is said to be relatively elastic when a given
proportionate change in Price causes a more than proportionate change in quantity
demanded.
5. Relatively
Inelastic demand: Demand is relatively inelastic when a given proportionate
change in price causes a less than proportionate change in quantity demanded.
Demand curve will be a very steep curve. Elasticity is less than 1. For
example, If price changes by 20% quantity demanded changes by 10% Then ep =
10/20 = .5 ie; ep<1.
Of the five
degrees of elasticity perfectly elastic and perfectly inelastic are extreme
cases i.e. rarely found in actual life. Unitary elasticity, relatively elastic
and relatively inelastic demand are the most widely used price elasticties.
FACTORS INFLUENCING PRICE ELASTICITY OF DEMAND
1. Nature of
commodity: Elasticity depends on whether the commodity is a necessity, comfort
or luxury. Necessities of life have inelastic demand and comforts and luxuries
have elastic demand.
2.
Availability of substitutes: Goods with substitutes have elastic demand and
goods without substitutes have inelastic demand. For example: coffee and tea
are substitutes. If price of tea increases, people may switch over to coffee.
If price of coffee raises people may shift to tea. The demand of salt is
inelastic.
3. Uses of
the commodity: Certain goods can be put to many uses. Example – electricity.
Such goods have elastic demand because as the price decreases, they will be put
to more uses.
4. Proportion
of income spent on commodity: For some goods, consumers spend only a small part
of their income. The demand will be inelastic. For eg: - salt and matches
5. Price of
goods: Generally cheap goods have inelastic demand and expensive goods have
elastic demand.
6. Income of
consumers: Very rich people have inelastic demand for goods and poor people
have elastic demand. Because rich people will buy the commodity at all levels
of prices where poor people there is a change in quantity of consumption
according to change in price.
7. Time
period: Elasticity would be more in the long run than in the short run. Because
in the long run consumers can adjust their demand by switching over to cheaper
substitutes. Production of cheaper substitutes is possible only in the long
run.
8.
Distribution of income and wealth in the society: If there is unequal
distribution of income, the demand of commodities will be relatively inelastic.
If the distribution of income and wealth in the society is equal there will be
elastic demand for commodities.
Measurement of Elasticity of Demand
Elasticity of
demand can be measured through three popular methods. These methods are:
1. Percentage
method or Arithmetic method
2. Total Outlay
method
3. Graphic
method or point method.
4. ARC Method
5. Revenue
Method
1. Percentage
method: According to this method elasticity is estimated by dividing the
percentage change in amount demanded by the percentage change in price of the
commodity.
ep =
[Percentage change in demand / Percentage change in price]
In this
method, three values of ‘ep’ can be obtained. Viz., ep = 1, ep > 1, ep >
1.
If 5% change
in price leads to exactly 5% change in demand, i.e. percentage change in demand
is equal to percentage change in price , e = 1, it is a case of unit
elasticity.
If percentage
change in demand is greater than percentage change in price, e > 1, it means
the demand is elastic.
If percentage
change in demand is less than that in price, e > 1, meaning thereby the
demand is inelastic.
2. Total Outlay Method: The elasticity of demand can be
measured by considering the changes in price and the consequent changes in
demand causing changes in the total amount spent on the goods. The change in
price changes the demand for a commodity which in turn changes the total
expenditure of the consumer or total revenue of the seller.
If a given
change in price fails to bring about any change in the total outlay, it is the
case of unit elasticity. It means if the total revenue (price x Quantity
bought) remains the same in spite of a change in price, ‘ep’ is said to be
equal to 1
If price and
total revenue are inversely related, i.e., if total revenue falls with rise in
price or rises with fall in price, demand is said to be elastic or e > 1.
When price
and total revenue are directly related, i.e. if total revenue rises with a rise
in price and falls with a fall in price, the demand is said to be inelastic pr
e < 1.
3.
Graphic method or Point method: Graphic method is otherwise known
as point method or Geometric method. According to this method elasticity of
demand is measured on different points on a straight line demand curve. The
price elasticity of demand at a point on a straight line is equal to the lower
segment of the demand curve divided by upper segment of the demand curve.
4. ARC method: The concept of ARC elasticity was
provided by Dalton and than it was further developed by Lerner. This method for
the measurement of price elasticity of demand is applied when the change in
price is somewhat large or the price elasticity over an ARC of demand is
provided. ARC elasticity of demand is the elasticity between distinct points on
the demand curve. It is an increase of average responsiveness to price change
shown by a demand curve. Any two points on demand curve make an ARC.
5. Revenue Method: Mrs. Joan Robinson has given this
method. She says that elasticity of demand can be measured with the help of
average revenue and marginal revenue.
Importance of Elasticity of Demand
1. Determination of price policy: While
fixing the price of this product, a businessman has to consider the elasticity
of demand for the product. He should consider whether a lowering of price will
stimulate demand for his product, and if so to what extent and whether his
profits will also increase a result thereof.
2. Price discrimination: Price
discrimination refers to the act of selling the technically same products at
different prices to different section of consumers or in different in
sub-markets. The policy of price-discrimination is profitable to the monopolist
when elasticity of demand for his product is different in different
sub-markets. Those consumers whose demand is inelastic can be charged a higher
price than those with more elastic demand.
3. Shifting of tax burden: To
what extent a producer can shift the burden of indirect tax to the buyers by
increasing price of his product depends upon the degree of elasticity of
demand. If the demand is inelastic the larger part of the indirect tax can be
shifted upon buyers by increasing price. On the other hand if the demand is
elastic than the burden of tax will be more on the producer.
4. Taxation and subsidy policy: The
government can impose higher taxes and collect more revenue if the demand for
the commodity on which a tax is to be levied is inelastic. On the other hand,
in ease of a commodity with elastic demand high tax rates may fail to bring in
the required revenue for the government. Govt., should provide subsidy on those
goods whose demand is elastic and in the production of the commodity the law of
increasing returns operates.
5. Importance in international trade: The
concept of elasticity of demand is of crucial importance in many aspects of
international trade. The success of the policy of devaluation to correct the
adverse balance of payment depends upon the elasticity of demand for exports
and imports of the country.
6. Importance in the determination of factors prices: Factor
with an inelastic demand can always command a higher price as compared to a
factor with relatively elastic demand. This helps the trade unions in knowing
that where they can easily get the wage rate increased. Bargaining capacity of
trade unions depend upon elasticity of demand for workers services.
7. Determination of sale policy for supper markets: Super
Markets is a market where in a variety of goods are sold by a single
organization. These items are generally of mass consumption. Therefore, the
organization is supposed to sell commodities at lower prices than charged by
shopkeepers in the other bazars. Thus, the policy adopted is to charge a
slightly lower price for items whose demand is relatively elastic and the costs
are covered by increased sales.
8. Pricing of joint supply products: The
goods that are produced by a single production process are joint supply
products. The cost of production of these goods is also joint. Therefore, while
determining the prices of these products their elasticity of demand is
considered.
9. Effect of use of machines on employment: The
use of machines may reduce the cost of production and price. If the demand of
the product is elastic then the fall in price will increase demand
significantly. As a result of increased demand the production will also
increase and more workers will be employed.
10. Public utilities: The
nationalization of public utility services can also be justified with the help
of elasticity of demand. Demand for public utilities are generally inelastic in
nature. If the operation of such utilities is left in the hand of private
individuals, they may exploit the consumers by charging high prices.
11. Output decisions: The
elasticity of demand helps the businessman to decide about production. A
businessman chooses the optimum product- mix on the basis of elasticity of
demand for various products. The products having more elastic demand are
preferred by the businessmen. The sale of such products can be increased with a
little reduction in their prices.
From the
above discussion it is amply clear that price elasticity of demand is of great
significance in making business decisions.
Supply Theory
Meaning of Supply : “The supply
of good is the quantity offered for sale in a given market at a given time at
various prices”. Thus, the important features of supply may be concluded as:-
(i) It is the quantity of commodity
offered for sale in the market at various prices.
(ii) It is flow and is always
measured in terms of time.
Determinants of Supply are follows:
a)
Price of the Commodity: There is a direct relationship between
price of a commodity and its quantity supplied. Generally, higher the price,
higher the quantity supplied, and lower the price, lower the quantity supplied.
b)
Price of Related Goods: The supply of a good depends upon the
price of related goods. Example, Consider a firm selling tea. If price of coffee
rise in the market, the firm will be willing to sell less tea at its existing
price. Or, it will be willing to sell the same quantity only at a higher price.
c)
Number of Firms: Market supply of a commodity depends upon number
of firms in the market. Increase in the number of firms implies increase in
market supply, and decrease in the number of firms implies decrease in market
supply of a commodity.
d)
Goal of the Firm: If goal of the firm is to maximize profits, more
quantity of the commodity will be offered at a higher price. On the other hand,
if goal of the firm is to maximize sales (or maximize output or employment)
more will be supplied even at the same price.
e)
Price of Factors of Production: Supply of a commodity is also
affected by the price of factors used for the production of the commodity. If
the factor price decreases, cost of production also reduces. Accordingly, more
of the commodity is supplied at its existing price. Conversely, if the factor
price increases cost of production also increases. In such a situation less of
the commodity is supplied at its existing price.
f)
Change in Technology: Change in technology also affects supply of
the commodity. Improvement in the technique of production reduces cost of
production. Consequently, more of the commodity is supplied at its existing
price.
g)
Expected Future Price: If the producer expects price of the
commodity to rise in the near future, current supply of the commodity will
reduce. If, on the other hand, fall in the price is expected, current supply
will increase.
h)
Government Policy: ‘Taxation and subsidy’ policy of the government
affect market supply of the commodity. Increase in taxation tends to reduce
supply. On the other hand, subsidies tend to increase supply of the commodity.
Law of Supply
In
the Words of Dooley, “The law of supply states that other things remaining the
same, higher the prices the greater the quantity supplied and lower the prices
the smaller the quantity supplied”.
Assumption
of the Law:
(i)
It
is assumed that incomes of buyers and sellers remain constant.
(ii)
It
is assumed that the tastes and preferences of buyers and sellers remain
constant.
(iii)
Cost
of all the factors of production is also assumed to be constant.
(iv)
It
is also assumed that the level of technology remains constant.
(v)
It
is also assumed that the commodity is divisible.
(vi)
Law
of supply states only a static situation.
Criticisms of Law of Supply:
(i)
It
Explains Only the Static Situation
(ii)
Expectation
of Change in the Prices in
(iii)
It
does not Apply on Agricultural Products
(iv)
It
does not Apply on Artistic
(v)
It
does not Apply on the Goods of Auction
Elasticity of Supply
Meaning:
Supply is responsive to price changes. The extent to which supply extends for a
given price rise is known as elasticity of supply. Elasticity of supply may
also be defined as the ratio of the percentage change or the proportionate
change in quantity supplied to the percentage or proportionate change in price.
Es = proportionate change in
supply/Proportionate change in price or
= (change in quantity supplied/Original
quantity supplied) × (Change in price/Original price)
Let
Q = Original supply
ΔQ
= Change of supply
P
= Original price and
ΔP
= Change of price, then
Es = (ΔQ/Q) / (ΔP/P) = (ΔQ/Q) × (P/ΔP) =
(ΔQ/ΔP) × (P/Q)
Methods for Measurement of Elasticity of Supply
Elasticity of supply can be measured by using two methods:
1.
The point method and
2.
The ratio method
1.
The Point Method: On
the given supply curve the price elasticity at a point is measured by the
distance along a tangent to the horizontal axis divided by the distance along
it to the vertical axis.
The
elasticity of supply at point T is measured as RT/OT
In
panel (a) RT > OT, therefore Es >
1
In
panel (b) RT = OT, therefore Es =
1
In
panel (c) RT < OT, therefore Es <
1
2. The Ratio method: The
co-efficient of elasticity of supply is obtained by using the ratio method as
follows:
Es = (ΔQ/Q) × (P/ΔP)
The
co-efficient of elasticity of supply varies from zero to infinity.
Factors Determining Elasticity of Supply
Following
factors affect the elasticity of supply of a commodity:
a)
Nature
of the Inputs used: The elasticity of supply depends on the nature of inputs used
for the production of commodity. If factors of production are those which are
commonly used (and therefore easily available), supply of the commodity will be
elastic. On the other hand, if specialized factors are used (which are not
easily available), supply will be less elastic.
b)
Natural
Constraints: The elasticity of supply is also influenced by the natural
constraints in the production of a commodity. If we wish to produce more teak
wood, it will take years of plantation before it becomes usable. Supply of teak
wood will therefore be less elastic.
c)
Risk
Taking: The elasticity of supply depends on the willingness of
entrepreneurs to take risk. If entrepreneurs are willing to take risk, the
supply will be more elastic. On the other hand, if entrepreneurs hesitate to
take risk, the supply will be inelastic.
d)
Nature
of the Commodity: Perishable goods are relatively less elastic in supply than
durable goods, because it is difficult to store the perishables.
e)
Cost
of Production: Elasticity of supply is also influenced by cost of production.
If production is subject to law of increasing costs, then supply of such goods
will be inelastic.
f)
Time
Factor: Longer the time period, greater will be the elasticity of
supply. Because, over a long period of time, more and more factors are easily
available and their input can be changed to increase (or decrease) output of
the commodity.
g)
Technique
of Production: If the technique is complex and needs large stock of capital,
then the supply of the commodity will be less elastic, because production
cannot be easily increased. On the other hand, goods involving simple technique
of production will have more elastic supply.