Question

When does the equilibrium quantity remain unaffected by a change in supply? Show it with the help of a diagram.

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

Answer 1

• When the demand curve is perfectly inelastic, a change in supply affects the equilibrium price, but the equilibrium quantity stays the same.
• In the diagram, the initial supply curve is SS and the demand curve is D. At equilibrium point A, the price is OP and the quantity is OQ₀.
• If supply increases, the supply curve shifts to the right (S₁S₁) and the price falls to OP₁.
• If supply decreases, the supply curve shifts to the left (S₂S₂) and the price rises to OP₂. In both cases, the quantity remains fixed at OQ₀.