Perfectly elastic demand
Also called: Infinitely elastic demand, Horizontal demand curve · Topic: Consumer Behaviour, Demand and Elasticity · NCERT: Class 12, Ch 2 "Theory of Consumer Behaviour"; Class 12, Ch 4 "The Theory of the Firm under Perfect Competition"
Meaning
Perfectly elastic demand means buyers will take any quantity at one given price, P̄. If the price rises even slightly above P̄, the quantity demanded falls to zero. The demand curve is a horizontal line at P̄, and |eD| is infinite at every point. It is an ideal case used in theory. Its most important use is in the model of perfect competition, a market with very many sellers of an identical product.
Example
A single wheat farmer in a large market can sell all their crop at the market price. If the farmer asks for even ₹1 more per quintal, buyers go to other farmers who sell identical wheat. So the demand curve facing a perfectly competitive firm is horizontal.
Don't confuse with
- Elastic demand: |eD| is greater than 1 but finite, and the curve slopes downward.
- Market demand in perfect competition: the demand curve for the whole industry still slopes down. Only the demand facing a single firm is horizontal.
Related concepts
- Price elasticity of demand
- Elastic demand
- Inelastic demand
- Unitary elastic demand
- Perfectly inelastic demand
- Elasticity along a linear demand curve
- Geometric measure of elasticity of demand
- Rectangular hyperbola
- Determinants of price elasticity of demand
- Elasticity and expenditure