Horizontal Demand Curve

Definition

A horizontal demand curve is a special case of a demand curve where the quantity demanded is completely unresponsive to changes in price. This means that the quantity demanded remains constant regardless of the price level, resulting in a perfectly elastic demand.

5 Must Know Facts For Your Next Test

1. A horizontal demand curve indicates that consumers are willing to buy any quantity at a given price, as their demand is completely unresponsive to price changes.
2. The horizontal demand curve is a special case of the constant elasticity demand curve, where the elasticity coefficient is equal to infinity.
3. Horizontal demand curves are associated with the polar case of perfectly elastic demand, where the quantity demanded changes infinitely in response to even the smallest change in price.
4. Products with close substitutes or commodities traded in highly competitive markets are more likely to exhibit a horizontal demand curve.
5. The horizontal demand curve is a theoretical concept, as in reality, most demand curves have some degree of slope, reflecting the law of diminishing marginal utility.

Review Questions

• Explain how a horizontal demand curve relates to the concept of perfectly elastic demand.
  • A horizontal demand curve is a graphical representation of perfectly elastic demand, where the quantity demanded changes infinitely in response to even the smallest change in price. This means that consumers are willing to buy any quantity at the given market price, as their demand is completely unresponsive to price variations. The horizontal demand curve is a special case of the constant elasticity demand curve, where the elasticity coefficient is equal to infinity.
• Describe the relationship between a horizontal demand curve and the concept of constant elasticity.
  • The horizontal demand curve is a special case of the constant elasticity demand curve, where the elasticity coefficient remains the same regardless of the price or quantity. In the case of a horizontal demand curve, the elasticity coefficient is equal to infinity, indicating that the quantity demanded changes infinitely in response to even the smallest change in price. This perfect elasticity of demand results in a completely flat, horizontal demand curve, where the quantity demanded is unaffected by changes in the price level.
• Analyze the factors that may contribute to the formation of a horizontal demand curve in the context of the polar cases of elasticity.
  • The horizontal demand curve is associated with the polar case of perfectly elastic demand, which is more likely to occur in markets with close substitutes or highly competitive conditions. In such scenarios, consumers have alternative options and are willing to switch between them in response to even minor price changes. Additionally, commodities traded in global markets with many buyers and sellers are also more likely to exhibit a horizontal demand curve, as individual consumers have little influence over the market price. The horizontal demand curve represents the theoretical extreme of demand elasticity, where the quantity demanded is completely unresponsive to price variations.

Related terms

Perfectly Elastic Demand:

Perfectly elastic demand occurs when the quantity demanded changes infinitely in response to even the smallest change in price, resulting in a horizontal demand curve.

Constant Elasticity:

Constant elasticity refers to a demand curve where the elasticity coefficient remains the same regardless of the price or quantity, such as in the case of a horizontal demand curve.

Polar Cases of Elasticity: Polar cases of elasticity refer to the two extremes of demand elasticity - perfectly elastic (horizontal) and perfectly inelastic (vertical) demand curves.