Final answer:
When demand increases and supply is perfectly elastic, the equilibrium quantity increases but the equilibrium price stays the same, as shown by the demand curve shifting right and meeting the perfectly elastic horizontal supply curve at a new equilibrium point.
Step-by-step explanation:
When demand increases and the supply is perfectly elastic, the equilibrium price remains unchanged, while the quantity sold increases. We can illustrate this effect through a supply and demand diagram. The perfectly elastic supply curve is represented as a horizontal line, indicating that any quantity will be supplied at the given price level. On the diagram, when demand increases, the demand curve shifts to the right from D1 to D2. Since the supply is perfectly elastic, it can meet the increased demand without changing the price.
We identify the new equilibrium where the new demand curve D2 intersects the perfectly elastic supply curve. Here, the equilibrium quantity has increased in response to the higher demand, but the equilibrium price remains the same. This scenario assumes that producers can supply an infinitely larger quantity at the current price due to factors such as new technology or economies of scale.