If the supply of health-care services is highly inelastic and larger government subsidies lead to an increase in the demand for the services,
A) the prices of health-care services will rise by only a small amount, but the quantity supplied will increase substantially.
B) the prices of health-care services will rise substantially, but the quantity supplied will increase by only a small amount.
C) both health-care prices and the quantity of the services supplied will increase substantially.
D) the prices of health-care services will decline, but there will be only a small change in the quantity supplied.

Question

Quizplus · Accepted Answer

When supply is highly inelastic, it means that the quantity supplied does not change much with price changes. Therefore, an increase in demand due to subsidies will lead to a substantial increase in prices, but only a small increase in the quantity supplied.

If the Supply of Health-Care Services Is Highly Inelastic and Larger