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(4.0 pts) What would be the shape of the supply curve for foreign currency if the...

  1. (4.0 pts) What would be the shape of the supply curve for foreign currency if the supply curve for exports is perfectly price inelastic? Explain and use graphs to derive the supply of foreign currency.
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Answer #1

The shape of the supply curve for foreign currency if the supply curve for exports is perfectly price inelastic is a Vertical Supply curve.A vertical supply curve indicates that there is no response in demand due to changes in prices. Price elasticity of Supply ( PES) = zero.

In the below figure the quantity supplied is Qs .This curve indicates that changes in price does not affect the quantity which is supplied . The supply curve is fixed and does not change due to the changes in quantity demanded ( shown as D1 and D2 curves).

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