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Question
With the help of a diagram, show how equilibrium price and quantity of a commodity are affected when demand is perfectly elastic and supply decreases.
Diagram
Very Short Answer
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Solution
When the demand curve is perfectly elastic (a horizontal line), any change in supply leads to a change in quantity, but the price stays the same.
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Chapter 6: Market Mechanism: Equilibrium Price and Quantity in a Competitive Market - TEST YOURSELF QUESTIONS [Page 114]
