Question

Which of the following statements is true?

a) Supply and demand tend to be much more elastic in the long run than in the short run.

b) Supply is elastic in the short run, whereas demand is elastic only in the long run.

c) Supply and demand tend to be much more inelastic in the long run than in the short run.

d) Supply is inelastic in the short run, whereas demand is inelastic only in the long run.

Answer 1

a) Supply and demand tend to be much more elastic in the long run than in the short run.

This is the correct statement because in the short-run with the increase in the demand for goods, the supply cannot be increased because for producing goods, more time is required. Hence supply is more elastic in the long-run and inelastic in the short-run.

Similarly, the elasticity of demand for a good is inelastic in the short-run because in the short-run with the increase in the price of the goods, the quantity demand will not affect much because there is no alternative in the short-run.

But in the long-run people may find out the alternative goods, so with the increase in the in prince in the long-run people may have more alternatives, so quantity demand will change quickly because people have more alternatives.

Hence demand will be elastic in the long-run.

Hence option a is the correct answer.