ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -If elasticity of demand =∞, equilibrium price remain unchanged, no matter supply increases or decreases.

Detailed explanation-2: -Infinite elasticity or perfect elasticity refers to the extreme case where the quantity demanded changes by an infinite amount in response to any change in price at all. In this case, the demand curve is horizontal as Fig 6.4 A shows. Perfectly elastic demand is an extreme example.

Detailed explanation-3: -A vertical straight line demand curve shows that demand rises to infinity even when price remains constant.

Detailed explanation-4: -An increase in demand and a decrease in supply will cause an increase in equilibrium price, but the effect on equilibrium quantity cannot be detennined. 1. For any quantity, consumers now place a higher value on the good, and producers must have a higher price in order to supply the good; therefore, price will increase.

Detailed explanation-5: -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.