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JAMB Economics 1987 Question 24

Question 24

Theory of Supply

An increase in supply will lower price unless

  1. A.supply is perfectly inelastic
  2. B.demand is perfectly elastic
  3. C.it is followed by an increase in demand
  4. D.demand is highly inelastic.
Show the answer and explanation

Answer: B (demand is perfectly elastic)

Explanation

If demand is perfectly elastic, the demand curve is horizontal, so a rightward shift of supply raises quantity but leaves price unchanged.