A small decrease in a production quota will have a large impact on the support price if:
A) demand is completely elastic.
B) demand is highly (but not completely) elastic.
C) demand is inelastic.
D) The demand elasticity does not affect the price outcomes of a quota program.

Question

Quizplus · Accepted Answer

If demand is inelastic, then a small decrease in production will lead to a proportionally larger decrease in supply in relation to demand, causing the support price to rise. This is because the decrease in supply will not result in a significant decrease in demand, meaning consumers will still be willing to pay a higher price for the reduced supply.

A Small Decrease in a Production Quota Will Have a Large