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CDS 2024 · PYQ · Economy / Demand and Supply · medium

What will happen in case of an outward decrease in demand under normal downward sloping demand curve and perfectly elastic supply curve of a commodity?

Answer

The correct answer is C: Equilibrium quantity decreases and there is no change in price. When the supply curve is perfectly elastic, it is horizontal — meaning sellers are willing to supply any quantity at a fixed price. If demand decreases (shifts leftward) under a normal downward sloping demand curve, the new intersection with the…

  1. A.Equilibrium price and quantity increase
  2. B.Equilibrium price and quantity decrease
  3. C.Equilibrium quantity decreases and there is no change in price✓ Correct
  4. D.Equilibrium price increases and there is no change in quantity

Explanation

When the supply curve is perfectly elastic, it is horizontal — meaning sellers are willing to supply any quantity at a fixed price. If demand decreases (shifts leftward) under a normal downward sloping demand curve, the new intersection with the unchanged horizontal supply curve occurs at the same price but at a lower quantity. Hence the equilibrium quantity decreases while the equilibrium price remains unchanged.
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