What is Perfectly Elastic Demand?

Perfectly Elastic Demand: Infinite Responsiveness to Price

Perfectly elastic demand, also known as infinite elasticity of demand, refers to a theoretical concept in economics where the quantity demanded of a good or service becomes infinitely responsive to changes in its price. In other words, a small change in price leads to an infinite change in the quantity demanded, but only in the context of a particular price change.

Mathematically, a perfectly elastic demand curve is horizontal, meaning that the price remains constant regardless of the quantity demanded. This implies that consumers are willing to buy any quantity of the product at a specific price, but they won't buy it at any other price.

In the real world, perfectly elastic demand is a rare and extreme scenario. It usually occurs when a product is considered identical across all sellers, and consumers can easily switch between sellers without incurring any costs. This typically happens in perfectly competitive markets where there are many sellers offering identical products and consumers have perfect information about prices.

A common example used to illustrate perfectly elastic demand is that of an agricultural product, like wheat or corn, in a perfectly competitive market. Since the product is uniform, consumers can easily substitute between different sellers, and if one seller raises their price slightly, consumers will shift all their purchases to other sellers who maintain the original price. As a result, the demand curve for that product appears perfectly elastic within the range of price change.

In practical situations, most goods and services have demand curves that are not perfectly elastic but rather exhibit varying degrees of elasticity, ranging from perfectly elastic to relatively inelastic.

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