For a given decrease in demand, the effect on price is smallest and the effect on quantity exchanged largest when:
A)supply is perfectly elastic.
B)supply is elastic.
C)supply is unit elastic.
D)supply is perfectly inelastic.

Question

For a given decrease in demand, the effect on price is smallest and the effect on quantity exchanged largest when:
A)​supply is perfectly elastic.
B)​supply is elastic.
C)​supply is unit elastic.
D)​supply is perfectly inelastic.

Quizplus · Accepted Answer

When supply is perfectly elastic, it means that suppliers are willing to supply any quantity at a given price. Therefore, a decrease in demand would not affect the price at all (smallest effect on price), but the quantity exchanged would adjust to match the new level of demand (largest effect on quantity exchanged).

For a Given Decrease in Demand, the Effect on Price