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Elasticities Of Demand And Supply Practice Test

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A perfectly elastic supply curve has elasticity of supply equal to
Correct Answer:
Perfectly elastic
Explanation:
Elasticity of supply measures how responsive quantity supplied is to price changes. A perfectly elastic supply means producers are willing to supply any amount at the prevailing price, and even a tiny change in price would lead to a huge (theoretically infinite) change in quantity. Graphically, that corresponds to a horizontal supply curve, and the elasticity value is infinite. That’s why the appropriate label is perfectly elastic. The other terms describe different, finite responses: perfectly inelastic means no response (elasticity near 0), unit elastic means the percentage change in quantity equals the percentage change in price (elasticity = 1), and relatively elastic means a finite elasticity greater than 1.

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