Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It remains unchanged in both periods.
B
It is greater in the short-run than in the long-run.
C
It is greater in the long-run than in the short-run.
D
It is perfectly elastic in the long-run.
Understanding the Answer
Let's break down why this is correct
Answer
In a market with unitary elastic supply, the price elasticity of supply is equal to one, meaning that the percentage change in quantity supplied is exactly equal to the percentage change in price. When demand conditions shift significantly, the short-run supply may not respond as quickly to changes in price because producers might need time to adjust their production levels. For example, if there is a sudden increase in demand for oranges, farmers may not be able to produce more oranges immediately due to the time it takes to grow them. However, in the long run, producers can invest in new equipment or expand their orchards, allowing supply to adjust more effectively to the price changes. Therefore, while the elasticity remains unitary, the response to price changes becomes more pronounced over time, as producers adapt to the new demand conditions.
Detailed Explanation
In the long-run, suppliers can adjust more easily to changes. Other options are incorrect because Some might think that supply stays the same in both short and long runs; It's a common mistake to think short-run supply is more flexible.
Key Concepts
Unitary elastic supply
Short-run vs. long-run elasticity
Market conditions
Topic
Price Elasticity of Supply
Difficulty
hard level question
Cognitive Level
understand
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