Over longer periods of time, increases in oil prices provide firms with incentives to explore and recover oil.What does this indicate about the long-run price elasticity of supply for oil?
A)The elasticity coefficient is likely to be higher in the long run than in the short run.
B)The elasticity coefficient is likely to be lower in the long run than in the short run.
C)The elasticity coefficient approaches 0 in the long run as supplies are depleted.
D)The elasticity coefficient is unstable in the long run because oil supplies may be depleted.

Question

Quizplus · Accepted Answer

Over longer periods of time, firms have the ability to adjust their production processes (such as exploring and recovering oil) in response to changes in price. This flexibility leads to a higher long-run price elasticity of supply, as firms can increase their output more easily than in the short run.

Over Longer Periods of Time, Increases in Oil Prices Provide