Saved Bookmarks
| 1. |
Discuss the effect on equilibrium price and equilibrium quantity, when: (a) Supply is perfectly elastic and demand increases (b) Demand is perfectly inelastic and supply decreases |
|
Answer» Solution :(a) When supply is PERFECTLY ELASTIC, an increase in demand results in a shift in demand curve towards right but the price does not change since the supply curve is horizontal or perfectly elastic. Only the EQUILIBRIUM quantity rises. (B) When demand is perfectly INELASTIC, a decrease in supply leads to a leftward shift in supply curve but the demand curve remains the same. Fall in supply leads to an increase in prices but the equilibrium quantity does not change since the demand curve is vertical or perfectly inelastic. |
|