Summarize the factors that cause goods to have a more inelastic supply.

Solutions

Expert Solution

The factors that cause the good to have more inelastic supply include:

i. Raw materials: When the raw materials used in the production of the commodity are not easily available, the supply of goods become inelastic.

ii. If the firms are operating at their full capacity, then the production cannot be furthur increased by the firms and the supply becomes inelastic.

iii. Time factor: The firms cannot immediately increase the quantity supplied in response to price in the short term. This makes the supply inelastic in the short term.

iv. Low levels of stock: Some firms cannot stockpile the commodity produced and hence cannot immediately increase the supply in response to price. This makes the supply inelastic.

v. Constraints on factors of production: Due to limited substitutability of the factors of production, the firms cannot keep combining more variable factor with the fixed factor (for instance, more labor with capital). This poses difficulty in increasing the output and supply becomes inelastic.

Rahul Sunny answered 4 weeks ago

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