An increase in demand will cause a relatively small increase in price when
A) the increase in demand is small.
B) demand is highly elastic.
C) supply is highly elastic.
D) all of the above

Question

Quizplus · Accepted Answer

When demand increases, the effect on price depends on the elasticity of both demand and supply. A small increase in demand (A) might not significantly affect prices. If demand is highly elastic (B), consumers are sensitive to price changes, so prices cannot rise much. If supply is highly elastic (C), producers can easily increase production without a significant rise in costs or prices. Thus, all the options contribute to a scenario where an increase in demand leads to a relatively small increase in price.

An Increase in Demand Will Cause a Relatively Small Increase