Karthikeyan

Price Elasticity of Supply (PES) depends on several factors that affect how easily producers can respond to price changes.

🔑 1. Spare Productive Capacity

• If firms have unused resources (labour, machines, space), they can increase output easily.

• This makes supply more price elastic.

Example:

• Coca-Cola can quickly increase production because of its large-scale bottling capacity.

👉 During a recession, supply is usually more elastic because many resources are unused.

📦 2. Level of Stocks (Inventories)

• Firms with extra raw materials or finished goods can respond quickly to price changes.

• Higher stock levels → more elastic supply

Examples:

• Easy to store → pencils, ball bearings → elastic supply

• Hard to store → fresh milk, vegetables → inelastic supply

🏭 3. Number of Producers in the Industry

• More firms = more competition = easier to increase total supply

• Supply becomes more elastic

Examples:

• Restaurant industry → many producers → elastic supply

• Pharmaceutical industry → few firms → inelastic supply

⏳ 4. Time Period

• Short run:

  • Firms cannot change resources quickly

  • Supply is inelastic

• Long run:

  • Firms can adjust production, hire workers, buy machines

  • Supply becomes more elastic

Example:

• Farming cannot instantly increase crop supply → takes time

🔄 5. Ease & Cost of Factor Substitution

• Factor substitution = switching between labour and capital

• If resources are easy to switch (occupationally mobile):

  • Supply is elastic

• If resources are hard to switch:

  • Supply is inelastic

Example:

• Publishing firms can switch between books, magazines, etc. → elastic supply