Question

be original and use your own word. At least 250 words.

Are market supply curves typically more elastic in the short run or in the long run? Explain.

Answer 1

The price elasticity of supply measures how much the quantity supplied responds to changes in the price. Supply of a good is said to be elastic if the quantity supplied responds substantially to changes in price. Supply is said to be inelastic if the quantity supplied responds only slightly to changes in the price.

Supply elasticity is less (inelastic) in short run and more (elastic) in long run because firm has a limted production capacity. Producers cannot increase the goods produced as easily in the short run as in the long run.

Over the long run, producers can invest to increase his production capacity such as building new production unit.

Moreover, over the ong run, all factors of production are variable. Therefore, it is easier for firm to substitute one input with another to produce a particular good in case of increase in input price or scarcity of input. Therefore, supply tends to be elastic.

In an industry with high sunk costs, prices are relatively volatile.Sunk costs are those which have already been incurred and which are unrecoverable. The short run price is greater than the long run price. Hence, adjustment of production will be concentrated in the long run