Question

With the help of diagrams, show the effect of a change in demand (or shift in demand curves) on equilibrium price and quantity of a commodity when the supply curve is perfectly inelastic.

Using a diagram, show the effect of a change in demand (or shift in demand curves) on the price and quantity in the following situation:

When supply curve is perfectly inelastic.

Show with the help of a diagramme the effect of a change in demand on equilibrium price, when supply is perfectly inelastic.

Answer 1

When the supply curve is perfectly inelastic, a change in demand (increase or reduction) causes a change in the equilibrium price while the equilibrium quantity remains constant (OM). This is illustrated in the above figure.