Under normal downward sloping demand curve and fully elastic supply cu

Under normal downward sloping demand curve and fully elastic supply curve of a commodity, an exogenous decrease in demand would lead to

increase in equilibrium price and quantity

decrease in equilibrium price and quantity

decrease in equilibrium quantity and no change in price

increase in equilibrium price and no change in quantity

Answer is Right!

Answer is Wrong!

This question was previously asked in

UPSC CDS-1 – 2024

Download PDF Attempt Online

With a fully elastic supply curve, the supply curve is horizontal at a given price. An exogenous decrease in demand shifts the demand curve leftward. The new equilibrium occurs where the new (shifted) demand curve intersects the horizontal supply curve. Since the supply curve is horizontal, the equilibrium price remains unchanged, but the equilibrium quantity decreases as demand has fallen at that price.

A fully elastic supply curve means producers are willing to supply any quantity at a specific price. Any change in demand under such conditions will only affect the quantity, not the price, as long as the market quantity remains within the range where supply is fully elastic.

An elastic supply curve has infinite elasticity. This typically represents a situation where inputs are readily available at a constant cost, allowing production to expand or contract without affecting the per-unit cost and thus the supply price. In this case, a decrease in demand simply leads to lower sales volume at the prevailing market price.

Join Our Telegram Channel

More similar MCQ questions for Exam preparation:-