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Question


Show withe the help of diagrams, the effect on equilibrium price and quantity when:
(i) demand is perfectly elastic and supply decreases.
(ii) supply is perfectly elastic and demand increases.

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Solution

(I)When supply rises the price of the commodity increases and the quantity demanded decreases because of increase in price and shortage of supply in case when demand is elastic.
(ii) When supply is perfectly elastic and demand increases the price of the commodity might increase and equilibrium quantity will decrease.

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