2. True or false? If the demand for milk rose, then, in the long run, milk-drinkers would be better off if supply were elastic rather than inelastic.
True. An increase in demand raises price. If the price elasticity of supply of milk is low, then relatively little additional quantity supplied will be forthcoming as the price rises. As a result, the price of milk will rise substantially to satisfy the increased demand for milk. If the price elasticity of supply is high, then there will be a relatively large increase in quantity supplied when the price rises. As a result, the price of milk will rise only by a little to satisfy the higher demand for milk.