View FREE Lessons! Show Definition of Perfectly Elastic Demand:A perfectly elastic demand is a demand where any price increase would cause the quantity demanded to fall to zero, and reducing the price of a good or service will not increase sales. Detailed Explanation:A perfectly elastic demand curve is horizontal at the market price. It is important to distinguish between the market demand and a producer's demand. The market demand is the sum of individual demands. The market demand curve slopes downward. An individual producer's demand curve usually has a different slope. A buyer may need a specific good or service, but may not care which business provides it. A business's demand depends on the number of competitors it has, and if it can differentiate its product. If many producers offer identical products, then a buyer would make a decision based solely on price.  Businesses with a perfectly elastic demand curve operate in perfectly competitive markets. These companies are normally small and produce a good or service that is identical to other producers. No single company impacts the market price for the good or service it sells. Their customers are only motivated by price. These companies are “price takers”, meaning they must accept the market price, or choose not to sell their product. Any company that tries to raise its price will see its sales fall to zero because there are too many competitors offering the same product at a lower price. Conversely, a company could lower its price, but would not do so because it could sell all it can offer at the market price. To illustrate, assume Farmer Jones is a wheat farmer. He produces 200,000 bushels of wheat. The market price of wheat is determined on the Chicago Board of Trade, where buyers and sellers come together in the same way the price of a stock is determined on the New York Stock Exchange. The market supply and demand curves determine the price is $8.00 per bushel. This is illustrated on Graph 1. Graph 2 is Farmer Jones's supply and demand curve. Farmer Jones must accept $8.00 or less for his wheat. If he tries to sell it for $8.25, buyers would purchase from his competitors, so above $8.00 the quantity demanded would be zero. The good news is that Farmer Jones can sell his 200,000 bushels at $8.00, so there would be no incentive for him to reduce his price. (If Farmer Jones increased his supply, his supply curve on Graph 2 would shift to the right and there would be no change in the equilibrium price.) Learn more about a perfectly elastic demand curve by watching our video describing a perfectly competitive market structure. Dig Deeper With These Free Lessons:Price Elasticity of Demand – How Consumers Respond to Price Changes If you're seeing this message, it means we're having trouble loading external resources on our website. If you're behind a web filter, please make sure that the domains *.kastatic.org and *.kasandbox.org are unblocked. Recommended textbook solutions
Fundamentals of Engineering Economic Analysis1st EditionDavid Besanko, Mark Shanley, Scott Schaefer 215 solutions
Century 21 Accounting: General Journal11th EditionClaudia Bienias Gilbertson, Debra Gentene, Mark W Lehman 1,012 solutions
Introductory Business Statistics1st EditionAlexander Holmes, Barbara Illowsky, Susan Dean 2,174 solutions
Statistical Techniques in Business and Economics15th EditionDouglas A. Lind, Samuel A. Wathen, William G. Marchal 1,236 solutions When the supply is perfectly elastic the supply curve is?As seen in the figure, a perfectly elastic supply curve is the one in which the supply curve is perfectly horizontal.
Is perfectly elastic horizontal or vertical?Figure %: Elastic and Inelastic Curves At the extremes, a perfectly elastic curve will be horizontal, and a perfectly inelastic curve will be vertical.
|
When the supply for a product is perfectly elastic its supply curve is horizontal?
zusammenhängende Posts
Urheberrechte © © 2024 nguoilontuoi Inc.
