When the demand curve for a good is perfectly elastic and the supply curve shifts to the right, what happens to the equilibrium?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Price stays the same and quantity rises
A perfectly elastic demand curve is horizontal: buyers pay one fixed price and take any quantity at it. When supply shifts right, the new supply curve meets the same horizontal line further out.
So the price stays the same and the quantity rises. A fall in price with a rise in quantity happens only with an ordinary downward sloping demand curve.
This question uses Theory of Consumer Behaviour and Market Equilibrium together.
NCERT (2026-27): “Supply Shift … Similarly, when supply curve shifts rightward, as shown in panel (b), at p0 there will be supply excess of goods equal to q0q′0. In response to this excess supply, some firms will reduce their price and the new equilibrium will be attained at F where the supply curve SS1 intersects the demand curve DD0 such that the new market price is p1 at which q1 quantity is bought and sold. …” Introductory Microeconomics, Chapter 2 (Theory of Consumer Behaviour): “2.6.1 Elasticity along a Linear Demand Curve … Consider, for example, a vertical demand curve as the one depicted in Figure 2.20(a). Whatever be the price, the demand is given at the level q . A price never leads to a change in the demand for such a demand curve and |eD| is always 0. Therefore, a vertical demand curve is perfectly inelastic. Figure 2.20 (b) depics a horizontal demand curve, where market price remains constant at P , whatever be the level of demand for the commodity. At any other price, quantity demanded drops to zero and therefore ed = ∞ . A horizontal demand curve is perfectly elastic.” |