Question

SLUIC. U ULIC < 10 of 23 (5 complete) *4.2 Question 4 If the supply curve is very elastic and the demand curve shifts to the right, then O A. quantity will increase by a large amount and price by a small amount. O B. quantity will increase by a small amount and price by a large amount. O c. both quantity and price will increase by a small amount. OD. both quantity and price will increase by a large amount O E. the new price and quantity cannot be determined without more information

Answer 1

Answer is A: If the supply curve is very elastic and demand curve shifts to right, then quantity will increase by a large amount and price by a small amount.

Consider the extreme case, where elasticity of supply is infinite, i.e., the supply curve is horizontal. If demand curve shifts right, there won't be any change in price and only equilibrium quantity will increase. Contrary to this, when supply curve is inelastic or vertical, then a right shift of demand curve increases the equilibrium price without changing the equilibrium demand. The following figure shows a case where the supply curve is very elastic (not perfectly elastic or horizontal). As observed, the increase in quantity is much higher than the increase in price because of shift in demand curve towards right, when the supply curve is very elastic.

Price Quantity