If the demand curve is perfectly elastic, then an increase in supply will:

• A. increase both the equilibrium price and quantity
• B. increase the equilibrium quantity without changing the equilibrium price
• C. decrease the equilibrium price but leave the quantity unchanged
• D. decrease both the equilibrium price and quantity

Answer: (B)

Verified step by step guidance

1. Understand what a perfectly elastic demand curve means: it is a horizontal line at a specific price, indicating that consumers will buy any quantity at that price but none at a higher price.
2. Recognize that with perfectly elastic demand, the price is fixed by the demand curve and cannot change because consumers are only willing to pay that exact price.
3. Analyze what happens when supply increases: the supply curve shifts to the right, meaning more quantity is available at every price.
4. Since the price cannot change (due to perfectly elastic demand), the only adjustment occurs in quantity, which increases to meet the higher supply at the fixed price.
5. Conclude that an increase in supply with perfectly elastic demand leads to an increase in equilibrium quantity while the equilibrium price remains constant.