Economics – The allocation of resources - Price elasticity of supply (PES) | e-Consult

The availability of factors of production (land, labour, capital, and entrepreneurship) significantly influences the elasticity of supply. If factors of production are readily available and easily adaptable, supply is more elastic. If factors are scarce or difficult to obtain, supply is more inelastic.

• Land: The availability of land is a key factor. If land is scarce (e.g., in a densely populated area), the supply of agricultural products will be inelastic. Farmers cannot easily find more land to grow crops, even if demand increases. Conversely, if there is abundant and fertile land, the supply of agricultural products will be more elastic.
• Capital: The availability of capital (machinery, equipment, and technology) also affects supply elasticity. If a firm has readily available capital, it can easily increase production in response to higher prices, leading to a more elastic supply. However, if capital is scarce or expensive to acquire, supply will be more inelastic. For example, a firm requiring specialized machinery might find it difficult to quickly increase production even if demand rises.

Example 1: Consider the supply of fish. The availability of fishing boats and skilled fishermen is crucial. If there are plenty of boats and fishermen, the supply of fish is relatively elastic. However, if there are limited boats or a shortage of skilled fishermen, the supply of fish will be inelastic.

Example 2: The supply of a product requiring advanced technology (e.g., semiconductors) is often inelastic if the necessary technology is scarce or expensive. A firm cannot easily increase production without significant investment in new equipment.