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 inelastic.

Answer 1

When the demand curve is perfectly inelastic, that is, parallel to the Y-axis, a change in supply only causes a change in price, while the equilibrium quantity remains constant (OM). This is illustrated in the given fig.