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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?

  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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