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JAMB Economics 1978 Question 31

Question 31

Price Determination

If the demand for a product with a perfectly elastic supply increases, there will be

  1. A.an increase in price and quantity offered
  2. B.an increase in quantity offered but price will remain the same
  3. C.a reduction in price and quantity offered
  4. D.an increase in price but a reduction in quantity offered for sale
  5. E.an increase in quantity offered but a reduction in price.
Show the answer and explanation

Answer: B (an increase in quantity offered but price will remain the same)

Explanation

A perfectly elastic supply curve is horizontal, so a rise in demand raises the quantity sold while the price stays the same.