In the short run, ﬁrms are more likely to respond to demand shocks by altering inventory levels than
by changing how much they produce.

Question

Quizplus · Accepted Answer

In the short run, firms are more likely to adjust inventory levels to respond to fluctuations in demand rather than changing their production levels. This is because changing production requires more time and resources than adjusting inventory, which can be done relatively quickly.

In the Short Run, ﬁRms Are More Likely to Respond