CA Foundation · Business Economics · Theory of Demand and Supply
Which of the following is most likely to make the supply of a manufactured good MORE elastic?
Large unused stocks of raw materials and idle capacity make supply more elastic. With spare capacity and inputs on hand, a firm can expand output quickly and substantially when price rises. Specialised machinery, short time periods and storage difficulties all limit adjustment and make supply less elastic.
- ASpecialised machinery that cannot be used for other products
- BVery short time available for producers to respond to a price change
- CLarge unused stocks of raw materials and idle capacity with the firmCorrect
- DDifficulty in storing the finished product
Explanation
Spare capacity and available inputs let a firm raise output quickly when price rises, making supply more elastic. The other options (specialised machinery, short time, storage problems) restrict the ability to adjust output, making supply less elastic.
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