Increasing Supply Elasticity via Capacity

Steps:

• Recall price elasticity of supply (PES) measures responsiveness of quantity supplied to price changes; higher PES means more elastic supply.
• Identify factors raising PES: greater spare capacity, improved technology, or factor mobility allowing quick production increases.
• Evaluate options: seek action directly enhancing supply responsiveness, not demand or costs.
• Select option expanding productive capacity for flexible output scaling.

Why A is correct:

• New labor technology boosts productive capacity, enabling larger quantity supplied per price rise, per PES formula (%ΔQS / %ΔP), making supply more elastic.

Why the others are wrong:

• B: Advertising shifts demand curve rightward, increasing revenue but not affecting supply responsiveness.
• C: Increasing stocks may buffer short-run supply but primarily cuts costs via efficiency, not raising PES directly.
• D: Reducing stocks limits immediate supply adjustments, potentially lowering PES by constraining output flexibility.

Final answer: A