Question

Using a diagram, show the situation when the equilibrium price changes, but the equilibrium quantity remains same as a result of change in demand.

Show with the help of a diagram the effect of change on equilibrium when a supply curve is perfectly inelastic.

Answer 1

When the supply curve is perfectly inelastic (a vertical line), any change in demand leads to a change in the equilibrium price, but the equilibrium quantity stays the same.

In the diagram, the initial equilibrium point is A, where the demand curve is DD, the price is OP_O, and the quantity is OQ_O.

When demand increases, the demand curve shifts rightward to D₁D₁, and the new equilibrium point is B.

As a result, the price rises to OP₁, but the quantity remains constant at OQ_O.