Because the supply of a fixed factor is vertical,
A)the owners of the factor will accept all prices above zero.
B)only the supply of the factor matters for setting price
C)only the demand for the factor matters in setting the price.
D)the price will be set where the quantity supplied of the factor equals the quantity demanded.

Question

Quizplus · Accepted Answer

The supply of a fixed factor is vertical because it cannot be increased in the short run. Therefore, the price will be set where the quantity supplied of the factor equals the quantity demanded, as there is no room for adjustment in the supply. The owners of the factor will not accept all prices above zero because they have a limited supply and only offer that supply at a fixed price. Likewise, both the supply and demand for the factor matter in determining the price, not just one or the other.

Because the Supply of a Fixed Factor Is Vertical