Question

A key determinant of the price elasticity of supply is the time period under consideration. Which of the following statements best explains this fact?

a) Supply curves are steeper over long periods of time than over short periods of time.
b) Buyers of goods tend to be more responsive to price changes over long periods of time than over short periods of time.
c) The number of firms in a market tends to be more variable over long periods of time than over short periods of time.
d) Firms prefer to change their prices in the short run rather than in the long run.

Answer 1

The time period affects price elasticity of supply because supply and demand tend to be inelastic in the short run, causing larger price changes, while they become more elastic in the long run, allowing for greater quantity adjustments and smaller price movements.

Step-by-step explanation:

A key determinant of the price elasticity of supply is the time period under consideration. The correct statement that best explains this fact is: Supply curves are steeper over long periods of time than over short periods of time. This is because, in the short run, both supply and demand are often inelastic, meaning that shifts in either can result in larger changes in prices due to the limited ability to adjust production or consumption quickly. In contrast, in the long run, supply and demand tend to be more elastic, leading to smaller movements in prices as quantities respond more substantially to price changes over time. Therefore, the availability for firms to adjust their production methods, enter or exit the market, and for consumers to find substitutes, makes the supply curve flatter over a longer period.