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In case of perfectly elastic demand, what is the value of elasticity?
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Perfectly elastic demand occurs when even a negligible change in price leads to an infinite change in quantity demanded. In this theoretical state, the demand curve is a horizontal straight line parallel to the X-axis, signifying that consumers will buy any quantity at a specific price but nothing if the price rises.
Perfectly elastic demand occurs when even a negligible change in price leads to an infinite change in quantity demanded. In this theoretical state, the demand curve is a horizontal straight line parallel to the X-axis, signifying that consumers will buy any quantity at a specific price but nothing if the price rises.
This concept is a cornerstone of Microeconomic Theory, forming the foundation for Alfred Marshall's Principles of Economics (1890), which standardized modern supply and demand equilibrium analysis.
Elasticity of demand (Ed) measures the responsiveness of quantity demanded to a change in price.
Perfectly elastic demand is represented by Ed = infinity.
This scenario typically applies to perfectly competitive markets where goods are homogeneous.
Perfectly inelastic demand is represented by Ed = 0, where demand remains constant regardless of price changes (e.g., life-saving medicines).
Unitary elastic demand is represented by Ed = 1, where the percentage change in quantity is equal to the percentage change in price.
Option B (Ed = 1) represents Unitary Elasticity; Option C (Ed = 0) represents Perfectly Inelastic demand; Option D (Ed > 1) represents Highly Elastic demand.
A is correct тАФ perfectly elastic demand is represented by an infinite value of price elasticity, shown as a horizontal demand curve.
Link this to market structures: Perfectly elastic demand is the standard assumption for an individual firm operating under Perfect Competition, whereas a Monopoly faces a downward-sloping demand curve.
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