Assume demand is perfectly inelastic and market is in equilibrium. Suppose supply changes, then which of the following will happen?
Answer & explanation
Correct answer: option 4
The correct answer is Option 3: Both 1 and 2
- Perfectly inelastic demand means that quantity demanded does not change, no matter the price. The demand curve is a vertical line.
- When supply changes, the supply curve shifts, but since demand is perfectly inelastic, quantity remains constant.
- Instead of adjusting quantity, the price adjusts to restore equilibrium.
- If supply increases, price falls. If supply decreases, price rises.