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According to the source, how does a longer time period generally affect the price elasticity of supply of a good?
AIt makes supply more inelastic, as costs keep rising
BIt leaves elasticity unchanged across all periods
CIt makes supply more elastic, as firms can adjust output
DIt first reduces and then removes any elasticity
Answer & Solution
Correct answer: C. It makes supply more elastic, as firms can adjust output
1. A short period gives sellers little time to find resources and adjust production.
2. Over a longer period, firms can build new plants and new firms can enter.
3. This greater scope for adjustment makes quantity more responsive to price.
4. Hence a longer period raises elasticity of supply.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 2 Unit III "Supply", p.10_
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