Question

Suppose that the supply of oil to Pittsburgh, Pennsylvania, is perfectly elastic. If more people move to Pittsburgh because of its great football and hockey teams, what happens to the equilibrium price and quantity of oil in Pittsburgh?

Answer 1

Equilibrium price will remain the same and equilibrium quantity would increase.

Step-by-step explanation:

• When supply is perfectly elastic, suppliers are willing to sell any quantity demanded at a given price (in the graphic attached P*).
• If the population increases, tipically demand of every product would increase (included oil demand).

• Then, if demand increases (from Demand 0 to Demand 1 in the graph), the equilibrium quantity would increase, but prices remain the same because of supply elasticity.