Question

If supply is quite elastic, an increase in demand for output will:

a) increase equilibrium price substantially and increase equilibrium output substantially.
b) increase the equilibrium price substantially and increase equilibrium output slightly.
c) increase equilibrium price slightly and increase equilibrium output substantially.
d) increase the equilibrium price slightly and increase equilibrium output slightly.
e) not affect equilibrium price and output.

Answer 1

Option (c) is correct.

Step-by-step explanation:

If the supply of a product is quite elastic or we can say that it is relatively flatter than the demand curve. So, if there is an increase in the demand for the output then as a result there is a rightward shift in the demand curve.

This shift in the demand curve will increase the equilibrium price and equilibrium output in an economy. As we know that the supply curve is flatter than the demand curve, hence, an increase in equilibrium output is greater than the increase in equilibrium price.