Question

mounted to only 5 percent of world production that increase has been enough to help An article in the Wall Street Journal notes that although US of production has increased rapidly in recent years, the increase has trigger a price collapse Source: Georgi Kantchev and Spindle, "Shale Oll Producers Ready to Raise Output Wall Street Journal, May 13, 2015 A small increase in supply can lead to a large decline in equilibrium price when O A demand is relatively elastic OB supply is perfectly elastic O C. demand is relatively inelastic OD. demand is perfectly elastic

Answer 1

Option C is correct. When the demand function is highly inelastic, a rightward shift of the supply curve decreases the price by a greater value but increases the quantity by a very small value. This is due to the fact that consumers are not able to to increase their consumption when the price is reduced dramatically.

Option D is correct. Minimum wage is not a price ceiling but it is a price floor. This is because it sets a minimum wage rate which is higher than the equilibrium wage rate. Employers cannot hire a labour unit below this wage.