Question

Suppose an early freeze affects the market for oranges. The equilibrium quantity in this market will not change after the change in supply if the demand curve were:
1. perfectly horizontal.
2. perfectly vertical.
3. downward sloping.
4. upward sloping.

Answer 1

Answer:

2) perfectly vertical

Explanation:

When the price elasticity of demand is perfectly inelastic, the demand curve is perfectly vertical. This means that the quantity demanded will remain the same no matter what price.

In this scenario, the supply curve for oranges shifted to the left due to the early freeze, which results in a price increase at every level of quantity demanded. Since the demand is perfectly inelastic, the new equilibrium price will be determined by the how much the supply curve shifts.