Price Rationing Fails with Perfectly Elastic Demand

Steps:

• Rationing mechanisms allocate scarce goods; price is primary by raising to reduce quantity demanded.
• Fixed supply requires higher prices to clear market and distribute to willing buyers.
• Elasticity measures demand response to price changes.
• Perfectly elastic demand (horizontal curve) means quantity demanded falls to zero with any price increase.

Why C is correct:

• By definition, perfectly elastic demand implies infinite responsiveness; even infinitesimal price rise drops quantity demanded to zero, preventing price from rationing the good.

Why the others are wrong:

• A: Close substitutes increase elasticity but not to perfection, allowing price adjustments to still ration.
• B: Perfectly inelastic demand (vertical curve) lets price rise indefinitely without reducing quantity, enabling rationing by ability to pay.
• D: Fixed supply creates scarcity, making price rationing essential and possible.

Final answer: C