What are the influences on the elasticity of supply?
In the determination of the elasticity of supply, time is the most important factor. Suppose that you are in farming five field crops. The price of corn increases by 15 percent in July, 2002. If you have all of your land already allocated to a variety of crops, you cannot plant more corn in the middle of the growing season, even if you have monetary resources to so do. Land is a finite resource, and you are likely at full capacity with what you have planted. Next spring, you can cut back on your allocation of barley or oats, and plant more corn. However, that decision will be influenced more by next year’s market prices for field crops, not the 2002 price. The greater the time period, the more likely supply is to become elastic. Another factor to consider is whether or not a firm is operating at full capacity, near capacity, or under capacity. Capacity, or utilization rate, refers to the actual output of a company as a percentage of its potential production. The firm would be operating
