Principles of Macroeconomics 7th Edition

Published by South-Western College
ISBN 10: 1-28516-591-8
ISBN 13: 978-1-28516-591-2

Chapter 5 - Elasticity and Its Application - Questions For Review - Page 108: 9

Answer

Price elasticity of supply is greater in the long run. A firm cannot simply shut down or modify factory size in the short run. Time horizon is the answer. Over time firms can respond to changes in price by shutting down factories. Quantity supplied is more responsive to price in the long run.

Work Step by Step

This is a simple question of elasticity. Determine the elasticity then identify how firms respond to changes in time horizons both long run and short run.
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