perfectly elastic supply curve shift in demand

When a market experiences an increase in supply, it can have a significant impact on the overall dynamics of the market. One immediate effect is the creation of excess supply, which can lead to a shift in the supply curve.

In a perfectly elastic supply curve scenario, if the technology improves and supply increases, the producers' willingness to supply the commodity also increases. This means that they are willing to sell more units at the same price level. As a result, the quantity supplied in the market increases from 10 units (point A) to 20 units.

The shift in supply is represented by the movement of the supply curve from S1 to S2. This indicates that the supply curve has shifted outward, reflecting the increased willingness of producers to supply the commodity at the same price level.

In this scenario, if the demand for the commodity remains constant, the excess supply would lead to a decrease in price. However, since we are assuming a perfectly elastic supply curve, the producers are willing to supply more units at the lower price level.

To illustrate this concept, let's consider an example. Suppose the initial equilibrium point is where the price of a commodity is Rs.75 and the quantity supplied is 10 units (point A). If technology improves and supply increases, the producers' willingness to supply the commodity also increases, resulting in a shift from the initial supply curve S1 to the new supply curve S2.

In this scenario, if the demand for the commodity remains constant, there would be an excess supply of 10 units. However, since the supply curve is perfectly elastic, the producers are willing to supply more units at the lower price level. This means that the market would adjust by reducing the price until the quantity demanded equals the new quantity supplied.

In conclusion, a perfectly elastic supply curve shift in demand occurs when technology improves and supply increases, leading to an outward shift of the supply curve. This change in supply can have significant implications for the overall dynamics of the market, including changes in price and quantity traded.

Perfectly elastic supply curve shift in demand