What does a perfectly elastic supply curve indicate?

A perfectly elastic supply curve suggests that the quantity supplied is highly responsive to changes in price. In this context, if the price increases, suppliers are willing to supply any amount of the good or service, and if the price decreases, the quantity supplied can drop to zero. This characteristic is depicted as a horizontal line on a graph, indicating that even a tiny change in price can lead to a significant change in the quantity supplied.

In practical terms, this type of elasticity signifies that suppliers are ready to supply an infinite amount of a product at a specific price point. If the price falls below that point, they would not supply any of the product at all. This condition often applies in highly competitive markets where many firms are willing to enter the market if prices are at a profitable level, but will quickly exit if prices fall below their minimum acceptable price.

Other options refer to different types of supply responsiveness. For example, a constant quantity supplied regardless of price changes reflects a perfectly inelastic curve, while a situation where quantity supplied drops to zero as price decreases points to a specific behavior of supply that is not about being perfectly elastic. The understanding of these distinctions helps clarify the nature of supply under varying price conditions.