Under normal downward sloping demand curve and fully elastic supply cu

by

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
This question was previously asked in
UPSC CDS-1 – 2024
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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.

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