When the supply curve is vertical, supply is completely ______ to price and the elasticity of supply is __________ .
Answer & explanation
Correct answer: option 3
The correct answer is Option 3: Insensitive, zero
A vertical supply curve means that the quantity supplied remains constant regardless of price changes. This typically occurs when:
- The good is in fixed supply, such as land, rare artwork, or stadium seats.
- The firm cannot increase output, even if the price rises.
Understanding Elasticity in This Case:
- Price Elasticity of Supply (PES) = % Change in Quantity Supplied / % Change in Price
- Since quantity supplied does not change (remains constant), the numerator is zero, making: PES=0
- This means that supply is completely insensitive to price changes, and elasticity of supply is zero.