When will increase in supply bring down the price, leaving the quantity demanded unchanged?
When will increase in supply bring down the price, leaving the quantity demanded unchanged?
Solution
Option 1 -> When demand is perfectly elastic (horizontal demand curve), any price change causes infinite change in quantity demanded, so quantity would not remain unchanged.
Option 2 -> When demand is perfectly inelastic (vertical demand curve), quantity demanded is completely unresponsive to price changes, so it remains constant regardless of price changes.
Option 3 -> When demand is less elastic, quantity demanded still responds to price changes, though minimally, so quantity would not remain unchanged.
Option 4 -> When demand is more elastic, quantity demanded responds significantly to price changes, so quantity would not remain unchanged.
Hence, Option 2: When demand for the commodity is perfectly inelastic -> In perfectly inelastic demand, the demand curve is vertical, indicating that consumers will purchase the same quantity regardless of price changes. When supply increases (supply curve shifts right), the new equilibrium results in a lower price, but since the demand curve is vertical, the equilibrium quantity remains exactly the same. This typically occurs with necessities or goods with no close substitutes where consumers must purchase a fixed amount. -> correct
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