ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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True
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False
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Uncertain
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None of the above
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Detailed explanation-1: -Yes, it is true. Equilibrium price will remain unchanged when supply is perfectly elastic whether demand increases or decreases.
Detailed explanation-2: -If the demand is perfectly elastic, then a shift in the supply curve does not affect the equilibrium price. True, because a perfectly elastic demand curve is horizontal. Therefore, no matter what the shift is the equilibrium price will always remain the same.
Detailed explanation-3: -(iii) When demand is perfectly elastic and supply curve shifts to the right, there will be no change in the price but quantity will increase.
Detailed explanation-4: -A decrease in demand will cause the equilibrium price to fall; quantity supplied will decrease. An increase in supply, all other things unchanged, will cause the equilibrium price to fall; quantity demanded will increase. A decrease in supply will cause the equilibrium price to rise; quantity demanded will decrease.
Detailed explanation-5: -When supply is perfectly elastic and demand increases, there will be no change in the price but the quantity demanded increases.