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CA Foundation · Business Economics · Theory of Demand and Supply

In the very long run, compared with the market period, the supply of most goods tends to be:

Supply becomes more elastic in the long run. Over a longer period producers can vary all factors of production, expand capacity and new firms can enter, so quantity supplied responds much more to price changes than in the market period, when supply is almost fixed.

  1. APerfectly inelastic in both periods
  2. BMore elastic, since producers can change all factors of productionCorrect
  3. CLess elastic, since costs rise over time
  4. DPerfectly inelastic because of fixed capacity

Explanation

In the market period, supply is fixed or almost fixed, so it is highly inelastic. In the long run, firms can vary all inputs, build capacity and new firms can enter, so supply responds more fully to price. Thus elasticity of supply increases with the time available.

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