Question

With the help of a diagram, show the effect of a change in supply (or shift in supply curves) on the price and quantity sold in the following situation:

When the demand curve is perfectly elastic.

Answer 1

When the demand curve is perfectly elastic, i.e., parallel to the X-axis, a change in supply (increase or decrease) causes a change in equilibrium quantity, but the price remains constant (OP). This is illustrated in the given figure.