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CA Foundation · Business Economics · Theory of Demand and Supply

Which of the following statements about the time period and the elasticity of supply is correct?

Supply is generally more elastic in the long run than in the market period. In the market period output is fixed, so supply is almost perfectly inelastic, while in the long run producers can vary all inputs and plant size, responding more fully to price changes.

  1. ASupply is generally more elastic in the long run than in the market period because producers can adjust all inputsCorrect
  2. BSupply is generally more elastic in the market period because producers can change plant capacity
  3. CSupply elasticity is the same in all time periods because it depends only on price
  4. DSupply is perfectly elastic in the market period because output can be changed instantly

Explanation

In the market (very short) period, supply is fixed and perfectly inelastic as output cannot be changed. In the short run only variable inputs can be altered, while in the long run all inputs including plant capacity can be altered, so supply is most elastic. Hence longer time allows greater response to price.

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