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 in the long run than in the short run?
Supply becomes more elastic in the long run because firms can build new plants and new firms can enter the industry. With more time, producers can vary all inputs and scale up output in response to a price rise.
- AFirms can build new plants and enter the industry over timeCorrect
- BInputs are fixed and cannot be changed
- CThe government fixes the price of the good
- DProducers cannot store the goods
Explanation
In the long run all factors can be varied, and new firms can enter, so output responds more fully to a price change. Fixed inputs, inability to store, and short time all make supply less elastic. A price fix does not by itself raise elasticity.
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