Correct Option: B. An increase in quantity offered but price will remain the same
Explanation of the Correct Answer
To understand why option B is correct, we need to break down the concepts of perfectly elastic supply and how demand changes affect the market.
- Perfectly Elastic Supply:
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When we say that the supply of a product is perfectly elastic, it means that suppliers are willing to supply any quantity of the product at a specific price. If the price changes, the quantity supplied can change dramatically, but the price itself remains constant. This is represented graphically as a horizontal supply curve.
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Increase in Demand:
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An increase in demand means that consumers are willing to buy more of the product at the same price. This can be due to various factors such as an increase in consumer income, a change in consumer preferences, or a decrease in the price of a substitute good.
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Market Dynamics:
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When demand increases, the demand curve shifts to the right. In a market with perfectly elastic supply, the suppliers can meet this increased demand without changing the price. They will simply supply more of the product at the same price point.
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Conclusion:
- Therefore, with perfectly elastic supply, an increase in demand leads to an increase in the quantity offered while the price remains unchanged. This is why option B is the correct answer.
Why the Other Options are Incorrect
- Option A: An increase in price and quantity offered:
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This option suggests that both price and quantity will increase. However, in a perfectly elastic supply scenario, the price does not change regardless of the quantity supplied. Thus, this option is incorrect.
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Option C: A reduction in price and quantity offered:
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This option implies that both price and quantity decrease, which contradicts the scenario of increased demand. An increase in demand would not lead to a reduction in quantity offered; rather, it would lead to an increase in quantity supplied at the same price. Therefore, this option is also incorrect.
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Option D: An increase in price but a reduction in quantity offered for sale:
- This option suggests that price increases while quantity decreases, which is not consistent with the concept of perfectly elastic supply. An increase in demand would not cause a price increase in this scenario, and a reduction in quantity offered contradicts the nature of increased demand. Thus, this option is incorrect as well.
Summary of Key Concepts
- Perfectly Elastic Supply: Suppliers can provide any quantity at a fixed price; the supply curve is horizontal.
- Increase in Demand: Leads to a rightward shift of the demand curve, indicating consumers want more at the same price.
- Market Outcome: In a perfectly elastic supply scenario, an increase in demand results in an increase in quantity offered while the price remains unchanged.
Revision Summary
- Perfectly elastic supply means price remains constant regardless of quantity supplied.
- An increase in demand leads to a rightward shift in the demand curve.
- In this scenario, quantity offered increases while price stays the same.
- The correct answer is B: An increase in quantity offered but price will remain the same.