Price Elasticity of Supply and the factors affecting it

September 12, 2017 Tourism


Supply refers to the measure that manufacturers want and able to supply for the market at a given monetary value in a given clip period. ( Murrad ) , The basic jurisprudence of supply is that as the monetary value of a merchandise rises, manufacturers expand their supply onto the market.




On a supply curve, monetary value and measure, lifting together are said to hold a positive relationship presuming Ceteris Paribus.

If the monetary value of the good differs, there is alteration along a supply curve.

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If the monetary value of the merchandise rises from P1 to P2 there is an enlargement of supply [ S2 ] in the market.

If the monetary value of the merchandise falls from P1 to P3 there would be a contraction of supply [ S3 ] in the market.

Theory of Supply in touristry, leisure and cordial reception industry ( Airline )

When there is addition in the monetary value of the merchandises or services, the measure supplied will increase every bit good.

For Example Expansion of supply

In the extremum season and holiday period, the monetary value of air hose ticket will raise and demand for the same is high and the air hoses are willing to provide more travellers by runing more frequent flights.

Contraction of Supply

The contraction of supply happens in the off-peak season of the twelvemonth where most people are non willing to go. The demand for the travel ticket is low and the touristry and travel houses are forced to cut down the rates of the air tickets. So, when there is bead in monetary value and measure demanded, the supply of the merchandises or services are contracted.

Shifts in the Supply Curve

If the supply curve displacements to the right ( from S1 to S2 ) this is an addition in supply ; more is provided for sale at each monetary value. If the supply curve moves inwards from S1 to S3, there is a lessening in supply significance that less will be supplied at each monetary value.

Factors that causes the Supply of the Measure

The monetary value which the manufacturer can obtain for the merchandise

The monetary values of the other goods

The costs of bring forthing the merchandise, which will, in bend, depend upon the wider environment, such as labour costs, revenue enhancement rates etc.

Changes in engineering may cut down the costs of production and excite a higher degree of supply to the market

Seasonal fluctuations or alterations in clime – Manufacturers of traditionally seasonal merchandises will bring forth goods in expectancy of increase demand.

Monetary value

The monetary value of merchandise dramas major function in supply of any merchandise or services. If demand of any merchandise is more in market so provider increases the monetary value of merchandise to acquire more net income but if demand is less of merchandise so he have to diminish the monetary value to remain in the market.

Monetary value of the other goods

The monetary value of the other merchandises will impact the supply, for illustration the air travel supply figure of clients use air travel will cut down when there are other manners of travel available cheaper than the flight tickets

For an case there are managers available to France, this might cut down the air travel when the monetary value is relatively lesser than the air tickets

The costs of bring forthing the merchandise

The costs of bring forthing the merchandise or services can do the supply of the service.

Lower costs of production mean that a concern can provide more at each monetary value.

The hiking in the fuel monetary value, airdrome charges and the authorities revenue enhancements will increase the production costs of the air hose industry. If the cost increases the monetary value of the merchandises or services will increase.

If the costs of production addition a rise in the monetary value of natural stuffs and revenue enhancements, so concerns can non provide at the same monetary value and this will do an inward displacement of the supply curve.

Changes in production engineering

The engineering development can act upon the supply of the merchandises or services. The technological alterations can cut down the procedure cost and the procedure will be more efficient.

For Example in the air hose industry

The engineering and package used to take online engagements, pre-arrival check-in procedure, and e-ticketing are the promotion for the air hose industry.

Changes in clime

The consequence of climatic conditions can exercise a great influence on market supply. Unfavorable conditions conditions like snowfall, hapless visibleness and other natural catastrophes like ash clouds from vent will take lessening in supply.

Price Elasticity of Supply ( PES )

Definition of monetary value snap of supply ( PES )

A step of reactivity of measure supplied of merchandise X to a alteration in its ain monetary value

The expression for monetary value snap of supply is:

PES = % alteration in measure supplied of Ten

% alteration in monetary value of Ten

Pes & A ; gt ; 1, so supply is monetary value elastic

Pes & A ; lt ; 1, so supply is monetary value inelastic

Pes = 0, supply is absolutely inelastic

Pes = eternity, supply is absolutely elastic following a alteration in demand

PES will be greater ( more elastic )

The more nomadic are factors of production

The longer the clip period

The less risk-averse the manufacturer

The fewer the natural restraints on production.

Graphic Illustation

( Adapted from John Tribe ( 2004 ) , The Economicss of Leisure and Tourism )

If supply is elastic, manufacturers can increase end product without a rise in cost or a clip hold

If supply is inelastic, houses find it difficult to alter production in a given clip period.

Factors Affecting Price Elasticity of Supply

The followers are the chief factors which influence the monetary value snap of supply:

Time Period

Availability of stocks

Spare capacity

Flexibility of capacity/ Resource Mobility

Time period

By and large the longer the clip period allowed, the easier it is for the supply to be changed.

Supply is more monetary value elastic – longer clip period allowed

For illustration, if there is a sudden addition in demand for air travel from Edinburg to London due to a manager or rail work stoppage, air hoses will non be able to supply more supply at that given clip.

The sustained air hoses can run into the measure demanded by renting excess planes or reassigning planes from less used paths to increase supply in a short tally.

In the long tally, new planes can be purchased to run into the addition in supply.

Availability of Stocks

In the fabrication industry, the handiness of stocks of goods is at their warehouse which enables supply to be more flexible and more elastic.

In the cordial reception and touristry industry, most of the merchandises or services are more perishable which can non stored like suites, air tickets, client service. The supply is inelastic in the short tally.

Spare capacity

The being of trim capacity either in footings of service capacity or fabrication capacity will do supply more elastic.

For illustration

The air hoses that have spare aircraft available for deployment when the supply of its services additions.

Flexibility of capacity/ Resource Mobility

Flexibility of capacity means that resources can easy be shifted from proviso of one good or service to another.

For illustration

Flexibility of the staff is besides a cardinal factor where in many organisations train staff to be multi-skilled to enable them to switch from one undertaking to another when impermanent demand arise. The supply will be more elastic.

In other manus the supply of specializer merchandises or services require the usage of specializer accomplishments or machines. The pilot preparation needs longer period and this can do the supply of air travel inelastic in short tally.

Supply curves with different monetary value snap of supply


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