If the supply curve is perfectly elastic, what effect will an increase in demand have?
A) It will increase the quantity exchanged but result in no change in the price.
B) It will increase both the price and the quantity exchanged.
C) It will increase the price but result in no change in the quantity exchanged.
D) It will decrease the price but result in no change in the quantity exchanged.

Question

Quizplus · Accepted Answer

A perfectly elastic supply curve means that producers can supply any quantity at a fixed price. In this case, an increase in demand will increase the quantity exchanged, but the price will remain the same. This is because producers can increase their output without raising prices since the supply is perfectly elastic. Therefore, the answer is A – it will increase the quantity exchanged but result in no change in the price.

If the Supply Curve Is Perfectly Elastic, What Effect Will