Explain what influences the price elasticity of supply of a product. [8]

A number of factors can affect the price elasticity of supply. One such factor is the production time of the product. A very long period of time from the start to the end of the production process will mean that if the product experiences a drastic change in its price, the supplier, despite willingness, would be unable to change the level of output as they are locked into producing the given quantity of the good. Thus, products that take a very long time to produce, such as agricultural goods usually have a lower price elasticity of supply than goods which take relatively less time to produce such as manufactured goods.

Another factor that can affect the price elasticity of supply is the perishability of the product. A product with high perishability cannot be stored for extended periods of time, as such, suppliers are unable to create large stocks of the product in order to be able to rapidly increase the supply of said product to the market if the price of the product happens to rise. Thus, goods with high durability, which can easily be stored in warehouses, will tend to have a higher price elasticity of supply as the stocks will allow suppliers to quickly increase output in response to a increase in price or decrease output and just store the products if the price happens to drop.

One final factor that would affect the price elasticity of supply would be the availability of the factors of production used in production process of the good. Products that are manufactured out of readily available, abundant resources such as wood or steel can easily have their outputs increased as the raw materials needed are easy to get a hold of and, as such, there are fewer barriers to suppliers increasing output. Similarly, products which require factors of production which are in very limited supply, such as highly skilled labourers or rare natural minerals cannot have their outputs adjusted as easily because it is far more difficult for supplier to increase the inputs due to them being in either fixed, or very limited supply. Thus, such goods will have a tendency to have a substantially lower price elasticity of supple when compared to goods produced out of abundant resources.