Definition and Factors Affecting the Elasticity of Supply ~ Offer is the quantity of goods and services supplied by producers at various price levels and other factors are assumed to be constant (ceteris paribus) or Supply is defined as the number of goods and services offered by producers at various certain price levels.
Definition and Factors Affecting the Elasticity of Supply
Supply Elasticity

1. Definition of Supply Elasticity

In EconomicsThe elasticity of supply is defined as a measure of the sensitivity of the quantity supplied of a good to the price of the good itself. The elasticity of supply measures the percentage change in quantity supplied due to a percentage change in price. For example, if the price of a good increases by 10%, the quantity supplied increases by 20%, then the coefficient of elasticity of demand is 20%/10% = 2. (Case & Fair, 1999: 119).

The number of goods offered, in the short run, differs from the number of goods produced, because a company usually does not immediately offer all of its products to consumers, but keeps some of its products for sale in the future (or commonly referred to as stock goods). However, in the long run, the number of goods supplied is considered equal to the number of goods produced.

Supply elasticity or elasticity of supply can be interpreted as the level of flexibility or the level of sensitivity of supply to price changes. This quantity shows the effect of price changes on the size of the quantity of goods offered or shows the level of sensitivity of changes in the quantity of goods offered to changes in the price of goods.

The elasticity of supply is expressed by a number called the coefficient of elasticity of supply and is denoted by the letter Es. Es value shows the comparison between the percentage change in the quantity of goods offered and the percentage change in price. The value of Es is calculated based on the following formula:

Ice = (ΔQ/Q)/(ΔP/P)

Q = change in quantity supplied

P = change in price of goods

P = original price

Q = number of original bids

Es = coefficient of elasticity of supply

If the supply of an item has a coefficient of Es equal to 2, then a percentage change in price will cause a percentage change in supply to be twice the percentage change in price.

If the price level of the good changes by 10 percent, the supply level will change by 20 percent.

The value of the supply coefficient, Es equal to 0.5 indicates that a change in the price level will cause the level of supply of goods to change by half than the change in the price level.

If the price level changes by 10 percent, then the change in the level of supply is 5 percent.

The value of Ice is greater than one, it is called elastic supply, whereas if the value of Ice is less than one, it is called inelastic supply. bids with Es value equal to one are called unitary bids or unit or normal bids.

In addition, there are two types of supply, namely perfectly elastic supply and perfectly inelastic supply. Perfectly elastic supply is represented by the value of infinite Es, and perfectly inelastic supply is represented by Es equal to zero.

The value of the coefficient of elasticity of supply can be calculated using the formula:

Elasticity of Supply Formula
Elasticity of Supply Formula

Or

Elasticity of Supply Formula
Elasticity of Supply Formula

2. Factors Affecting the Price Elasticity of Supply

As well as elasticity of demand, elasticity offer influenced by time, product durability, product capacity, amount of inventory, and the mobility of production factors.

a. Time

The production period greatly affects the elasticity of supply of goods. The offering of industrial goods will be different from agricultural products. To increase supply, the agricultural sector takes a relatively longer time than the industrial sector. Therefore, the supply of agricultural products is generally more inelastic than the industrial sector because producers cannot fulfill additional orders quickly even though prices of agricultural products increase.

What is meant by time here is the opportunity for producers/sellers to increase the amount of production. Time can be divided into three, namely as follows.

  1. Very Short Term. Producers cannot add goods in a very short time because supply depends on the supply (have to wait for the harvest), such as production in agriculture, such as vegetables and fruits. Time in a few days ± 40 days causes the supply to be inelastic.
  2. Short-term. Producers can still increase the production of goods offered even though they cannot increase the existing production capacity, such as buildings, machinery, but by working longer than the previous time or adding raw materials so that production can be increased. Supply in this time can be elastic or inelastic.
  3. Long-term. Supply is elastic because producers have many opportunities to expand production capacity (agricultural area, machinery, new factories, and experts). The longer the time the more elastic.

b. Product Durability

Products that have a shorter shelf life, such as food, agricultural products, are generally more inelastic. However, products with longer durability such as refrigerators, sewing machines, gas stoves tend to be more elastic.

To make it easier to understand the concept of price elasticity of demand and supply, a statement that can be used as a reference is that an item is said to be elastic, if a change in price has a major effect on the quantity of goods demanded or offered. An item is said to be inelastic, if a change in price has less effect on the quantity of goods and services demanded or offered.

Agricultural products, such as vegetables and fruits, are perishable, cracked, and wilted, so the supply tends to be inelastic. However, products with a longer shelf life, such as refrigerators, sewing machines, and gas stoves, tend to be more elastic.

c. Production capacity

Industries operating below optimal capacity tend to make the supply curve elastic.

d. Amount of stockpile

If the company keeps large amounts of inventory, the supply curve will be more elastic because it can immediately supply it to the market if there is demand from the public. If inventory is depleted, the company will find it difficult to supply goods so that the supply curve will be more inelastic.

e. Mobility of Factors of Production

Factors of production are said to have high mobility if they are easy to move from one place to another. If the factors of production have high mobility, producers can adjust their production capacity (amount of production) so that supply is more elastic.

Reference :

  1. Ahman, H., E., Rohmana, Y., 2007, “Economics in PIPS”, Second Edition, First Printing, Publisher Open University, Jakarta.
  2. Sukirno, S, 2011, “Introduction to Microeconomic Theory”, PT Raja Grafindo Persada, Third Edition, 26th Edition, Jakarta.
  3. http://myilmu Lintas Hukum.blogspot.co.id/2015/09/ Ekonomi.html
  4. http://myilmu Lintas Hukum.blogspot.co.id/2015/12/teori-penawaran.html
  5. http://myilmu Lintas Hukum.blogspot.co.id/2015/12/pengertian-dan-factor-penentu.html

    .