ACCA Applied Knowledge · Business and Technology · Microeconomic factors
Which of the following is most likely to make the supply of a product more price elastic in the short run?
Holding large stocks of finished goods and having spare production capacity makes supply more elastic, because the firm can increase output quickly when price rises. Scarce skills, perishability and full capacity all restrict the speed of response, making supply inelastic.
- AThe producer has large stocks of finished goods and spare production capacityCorrect
- BProduction requires highly specialised labour that takes years to train
- CThe product is perishable and cannot be stored
- DThe producer is operating at full capacity
Explanation
Supply can respond quickly to price changes when firms have spare capacity and stocks of finished goods. Specialised labour, perishability and full capacity all limit how quickly output can be increased, making supply less elastic.
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