Price Elasticity of Supply and the Factors Affecting It

Supply

Supply refers to the number that manufacturers want and in a position to provide for the marketplace at a given price in a given time frame. (Murrad), The essential law of resource is the fact that as the price of a product goes up, producers extend their resource onto the market.

S3

S1

S2

On a source curve, price and volume, rising jointly are said to have a confident relationship presuming Ceteris Paribus.

If the price of the good differs, there may be change along a resource curve.

If the price tag on the product goes up from P1 to P2 there can be an expansion of supply [S2] on the market.

If the price tag on the product comes from P1 to P3 there would be a contraction of resource [S3] in the market.

Theory of Source in travel and leisure, leisure and hospitality industry (Airline)

When you can find increase in the price tag on the merchandise or services, the quantity supplied will increase as well.

For Example Enlargement of supply

In the top season and vacation period, the price of airfare ticket will increase and demand for the same is high and the airlines are willing to supply more travelers by functioning more frequent flights.

Contraction of Supply

The contraction of resource happens in the off-peak season of the year where most people are not willing to travel. The demand for the travel ticket is low and the tourism and travel companies are forced to reduce the rates of air tickets. So, when there is certainly drop in cost and number demanded, the supply of the products or services are contracted.

Shifts in the Source Curve

If the supply curve shifts to the right (from S1 to S2) this can be an increase in source; more is provided for sale at each price. In the event the supply curve techniques inwards from S1 to S3, there's a decrease in source meaning that less will be provided at each price.

Factors that triggers the Way to obtain the Quantity

The price which the producer can obtain for the product

The prices of the other goods

The costs of producing the merchandise, which will, subsequently, depend after the wider environment, such as labor costs, tax rates etc.

Changes in technology may reduce the costs of development and stimulate a higher level of supply to the market

Seasonal modifications or changes in environment - Companies of typically seasonal products will produce goods in expectation of increase demand.

Price

The price of product plays major role in supply of any product or services. If demand of any product is more in market then dealer increases the price of product to get more income but if demand is less of product then he have to decrease the price to stay in the market.

Price of the other goods

The price of the other products will have an effect on the supply, for example the air travel source range of customers use air travel will reduce when there are other modes of travel available cheaper than the flight tickets

For an example there are instructors available to France, this may reduce the air travel when the purchase price is comparatively reduced than air tickets

The costs of producing the product

The costs of producing the merchandise or services can cause the way to obtain the service.

Lower costs of creation mean that an enterprise can source more at each price.

The hike in the gasoline price, air-port charges and the federal government taxes will improve the creation costs of the flight industry. If the price increases the price of the products or services increase.

If the expenses of creation increase a growth in the price of recycleables and fees, then businesses cannot source at the same price which will cause an inward shift of the resource curve.

Changes in production technology

The technology development can affect the way to obtain the merchandise or services. The technological changes can reduce the process cost and the process will be more efficient.

For Example in the flight industry

The technology and software used to take on-line bookings, pre-arrival check-in process, and e-ticketing will be the advancement for the airline industry.

Changes in climate

The aftereffect of climatic conditions can exert a great effect on market source. Unfavorable climate like snowfall, poor awareness and other natural calamities like ash clouds from volcano will lead reduction in supply.

Price Elasticity of Supply (PES)

Definition of price elasticity of supply (PES)

A measure of responsiveness of variety supplied of product X to a big change in its own price

The method for price elasticity of source is

PES = % change in variety supplied of X

% change in cost of X

Pes > 1, then supply is price elastic

Pes < 1, then source is price inelastic

Pes = 0, supply is flawlessly inelastic

Pes = infinity, source is perfectly elastic following a change in demand

PES will be better (more flexible)

The more mobile are factors of production

The longer the time period

The less risk-averse the producer

The fewer the natural constraints on creation.

Graphical Illustation

(Designed from John Tribe (2004), The Economics of Leisure and Tourism)

If source is elastic, makers can increase end result without a rise in expense or a period delay

If resource is inelastic, businesses think it is hard to change production in a given time period.

Factors Impacting on Price Elasticity of Supply

The following are the key factors which impact the price elasticity of supply

Time Period

Availability of stocks

Spare capacity

Flexibility of capacity/ Source Mobility

Time period

Generally the longer the time period allowed, the easier it is designed for the resource to be changed.

Supply is more price elastic - longer time period allowed

For example, if there is a sudden increase in demand for flights from Edinburg to London anticipated to a trainer or rail strike, airlines will never be in a position to provide more resource at that given time.

The sustained airlines can meet up with the quantity demanded by renting extra planes or transferring planes from less used routes to increase supply in a short run.

In the long term, new planes can be bought to meet up with the increase in source.

Availability of Stocks

In the making industry, the availability of stocks and shares of goods is at their warehouse which allows supply to become more flexible and much more elastic.

In the hospitality and tourism industry, most of the products or services are more perishable which cannot stored like rooms, air seat tickets, customer support. The supply is inelastic in the brief run.

Spare capacity

The lifetime of spare capacity either in terms of service capacity or processing capacity can make supply more stretchy.

For example

The airlines that have spare aircraft available for deployment when the supply of its services raises.

Flexibility of capacity/ Reference Mobility

Flexibility of capacity means that resources can certainly be shifted from provision of 1 good or service to another.

For example

Flexibility of the staff is also a key factor where in many organizations teach staff to be multi-skilled to allow them to alter from one job to some other when temporary requirement arise. The supply could be more elastic.

In other hand the way to obtain specialist products or services require the utilization of specialist skills or machines. The pilot training needs longer period which can make the way to obtain flights inelastic in short run.

Supply curves with different price elasticity of supply

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