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JAMB Economics 1987 Question 20

Question 20

Elasticity

In the diagram above, PS is the supply curve for a particular commodity while OP is the price. Which of the following statements is correct?

Diagram for this question
  1. A.The quantity supplied is infinitely elastic
  2. B.When price is zero, the quantity supplied is infinite
  3. C.When price is infinite, the quantity supplied is zero
  4. D.The quantity supplied is indefinite.
Show the answer and explanation

Answer: A (The quantity supplied is infinitely elastic)

Explanation

A horizontal supply curve means suppliers will supply any quantity at price OP, so supply is perfectly (infinitely) elastic.