What does underutilized resources indicate about supply?

Underutilized resources indicate elastic supply, which means that producers can readily increase the quantity of goods supplied when they respond to changes in market demand. When resources such as labor and capital are not being fully utilized, it suggests that there is capacity to produce more without significant additional costs. This responsiveness to changes in price reflects an elastic supply curve, where a relatively small increase in price can lead to a relatively larger increase in quantity supplied.

In contrast, inelastic supply would imply that quantity supplied cannot increase significantly in response to price changes, typically due to limitations in available resources or high fixed costs associated with production. Perfect competition refers to a market structure rather than a characteristic of supply elasticity, and market equilibrium describes a situation where supply equals demand, not necessarily the flexibility of that supply. Therefore, recognizing that underutilized resources enable suppliers to react more flexibly reinforces the understanding of why elastic supply is the correct answer.