CA Foundation · Business Economics · Theory of Demand and Supply
A firm's supply curve is a vertical straight line. Which statement about its price elasticity of supply is correct?
Elasticity is zero. A vertical supply curve means quantity supplied stays the same whatever the price, so the percentage change in quantity is zero and supply is perfectly inelastic, as with a fixed stock of a unique item.
- AElasticity is infinite, because price does not change
- BElasticity is one, because output changes proportionately
- CElasticity is greater than one but finite
- DElasticity is zero, because quantity supplied does not respond to priceCorrect
Explanation
A vertical supply curve means the same quantity is supplied at every price, so the percentage change in quantity is zero. Elasticity is therefore zero, which is perfectly inelastic supply. A horizontal curve would give infinite elasticity.
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