Supply Elasticity Increases with Easy Output Adjustment

Steps:

• Define price elasticity of supply as the percentage change in quantity supplied divided by percentage change in price; elastic if >1.
• Assess each condition's impact on the firm's ability to expand output when price rises.
• Eliminate options that impose constraints on production or resources.
• Choose the option enabling the most flexible response without production limits.

Why C is correct:

• Large stock (inventory) lets the firm supply more cars immediately from reserves when price rises, without needing new production, aligning with elastic supply where quantity responds strongly to price per the elasticity formula.

Why the others are wrong:

• A: Labor recruitment difficulty restricts hiring to boost output, reducing supply responsiveness and elasticity.
• B: Short run fixes capital like factories, limiting adjustments to variable inputs only, making supply relatively inelastic.
• D: Near full capacity exhausts production limits, preventing significant output increases and causing inelastic supply.

Final answer: C