Question : Statement 1: Demand for a product is perfectly elastic when quantity demanded becomes infinite at a specific price.
Statement 2: Perfectly elastic demand implies that any increase in price will cause quantity demanded to drop to zero.
Option 1: Both statements are true.
Option 2: Both statements are false.
Option 3: Statement 1 is true, and statement 2 is false.
Option 4: Statement 1 is false, and statement 2 is true.
Correct Answer: Both statements are true.
Solution : The correct answer is (A) Both statements are true.
Statement 1: Demand for a product is perfectly elastic when quantity demanded becomes infinite at a specific price.
This statement is true. Perfectly elastic demand refers to a situation where the quantity demanded becomes infinitely responsive to price changes. At a specific price point, even a slight change in price leads to an infinite change in quantity demanded. In other words, consumers are willing to buy an unlimited quantity of the product at that specific price.
Statement 2: Perfectly elastic demand implies that any increase in price will cause quantity demanded to drop to zero.
This statement is also true. Perfectly elastic demand indicates that consumers are highly sensitive to price changes. Any increase in price, no matter how small, will result in quantity demanded dropping to zero because consumers are unwilling to buy the product at a higher price.
Therefore both statements are true.