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

Question

Quizplus · Accepted Answer

When supply is highly elastic, it means that producers are able to quickly and easily increase their output in response to an increase in demand. This means that even if demand increases significantly, there will still be a relatively large increase in supply, which will prevent the price from rising too much. In contrast, if demand is highly inelastic, even a small increase in demand can lead to a large increase in price because producers are not able to respond quickly enough to the higher demand. Similarly, a large increase in demand can still lead to a significant increase in price if supply is not elastic enough to keep up with the higher demand. Therefore, the best choice is C – supply is highly elastic.

An Increase in Demand Will Cause a Relatively Small Increase