Answer to Question #201802 in Microeconomics for Sandiswa Zulu

Question

Indentify three factors that are likely to affect the price elasticity of supply for rice.

Answer 1

i) The Nature of the Good

The availability of replacements, like demand elasticity, is the most important predictor of supply elasticity. Substitute goods are those to which factors of production can be easily transferred in the context of supply.

II) The Level of Price

Supply elasticity is also likely to vary depending on price. When a commodity's price is relatively high, producers are likely to be supplying towards the limits of their capacity and, as a result, will be unable to respond quickly to a higher price.

Iii) Factor Mobility

The ease with which factors of production can be transferred from one use to another has an impact on supply price elasticity. The greater the elasticity, the larger the mobility of factor services.