Economics – The allocation of resources - Supply | e-Consult
The allocation of resources - Supply (1 questions)
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Answer:
A supply curve is said to be 'perfectly elastic' at a price of £50 per unit if, at that price, producers are willing and able to supply an unlimited quantity of the good. This means that even a tiny increase in the price will result in a very large increase in the quantity supplied. In other words, the supply curve is a horizontal line at that price.
Implications for Market Equilibrium:
- Price Stability: A perfectly elastic supply ensures that the quantity supplied is constant regardless of the price. This means that the market equilibrium price will be determined solely by the demand for the product.
- Consumer Benefit: Because the supply is perfectly elastic, the price will be driven down to the level where demand equals the quantity supplied. This benefits consumers as they can purchase the good at a lower price.
- Market Efficiency: Perfectly elastic supply leads to a highly efficient market where resources are allocated optimally. The price reflects the true value of the good to consumers, and producers are incentivized to supply as much as possible at that price.