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CMA Foundation · Fundamentals of Business Economics and Management · Theory of Demand and Supply

Which of the following is most likely to make the supply of a good MORE elastic over time for a manufacturer like a Coimbatore pump maker?

A longer time period makes supply more elastic because the firm can expand plant, install machines and hire labour in response to a price rise. Perishability, fixed output in the market period or restricted raw material availability all limit the response and make supply less elastic.

  1. AA longer time period allowing the firm to expand plant capacity and hire more workersCorrect
  2. BA legal ban on importing raw materials
  3. CPerishable nature of the product with no storage facility
  4. DA very short market period in which output is already fixed

Explanation

Elasticity of supply rises with time because the firm can adjust all inputs, including plant capacity, in the long run. Perishability and a fixed short-run output reduce the ability to respond to price changes, and an import ban restricts input availability.

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