The elasticity of supply measures the percentage change in supply due to a change in another factor. It refers to how the amount supplied of a good or service changes in response to a price or factor change. There are several factors that affect the supply elasticity of a good or service, such as the availability of resources, innovation of technology and the amount of producers.
The availability of resources affects supply elasticity. If an economy is using a lot of its scarce resources to produce a good or a service, a company finds it difficult to increase the supply of that good or service. This increases the price due to scarcity of the good or service, and the elasticity of supply is affected.
The innovation of technology also affects the elasticity of supply in some industries. Innovation tends to make goods or services more elastic. When there is innovation in technology, it leads to efficiency in the production of goods or services. Therefore, an increase in price increases the output by a greater factor because a company is able to produce more for a smaller price input.
Another factor that affects the supply elasticity of a good or a service is the amount of producers. When there are fewer barriers to entry of an industry, it is easier for companies to enter the industry and contribute to the supply of the goods and services of the industry. If there is an increase in the amount of producers, the supply of the goods and services can be increased more easily. Therefore, an increase in producers makes the supply more elastic.
(For related reading, see: Macroeconomics: Supply, Demand and Elasticity.)