Horizontal Demand Curve

Definition

A horizontal demand curve is a type of demand curve that is perfectly elastic, meaning the quantity demanded is highly responsive to even the smallest change in price. This indicates that consumers are extremely sensitive to price changes for the product, and they will buy a large quantity at the prevailing market price but none at all if the price rises even slightly.

5 Must Know Facts For Your Next Test

1. A horizontal demand curve indicates that consumers are extremely price sensitive and will buy a large quantity at the prevailing market price but none at all if the price rises even slightly.
2. The horizontal demand curve is a special case of the polar cases of elasticity, where the elasticity coefficient is equal to infinity, representing perfect elasticity.
3. In the context of constant elasticity, a horizontal demand curve would have an elasticity coefficient of negative infinity, indicating that the quantity demanded is infinitely responsive to even the smallest change in price.
4. Horizontal demand curves are often used to model highly competitive markets where products are perfect substitutes, and consumers have a wide range of alternative options.
5. The horizontal demand curve is a theoretical construct, and in reality, most demand curves exhibit some degree of curvature, reflecting the fact that consumers have varying price sensitivities.

Review Questions

• Explain how the horizontal demand curve is related to the concept of perfect elasticity.
  • The horizontal demand curve is a special case of perfect elasticity, where the quantity demanded changes infinitely in response to even the smallest change in price. This means that consumers are extremely sensitive to price changes and will buy a large quantity at the prevailing market price but none at all if the price rises even slightly. The horizontal demand curve represents the scenario where the elasticity coefficient is equal to negative infinity, indicating that the quantity demanded is perfectly responsive to price changes.
• Describe the relationship between the horizontal demand curve and the concept of constant elasticity.
  • In the context of constant elasticity, a horizontal demand curve would have an elasticity coefficient of negative infinity. This means that the demand curve exhibits a constant level of elasticity, where the responsiveness of quantity demanded to price changes remains the same regardless of the specific price or quantity. The horizontal demand curve is a special case of constant elasticity, where the elasticity is perfectly elastic, and the quantity demanded changes infinitely in response to even the smallest change in price.
• Analyze the market conditions and consumer behavior that would lead to a horizontal demand curve.
  • A horizontal demand curve is often observed in highly competitive markets where products are perfect substitutes, and consumers have a wide range of alternative options. In such markets, consumers are extremely price-sensitive and will readily switch to alternative products if the price of the original product rises even slightly. This results in a perfectly elastic demand curve, where the quantity demanded changes infinitely in response to even the smallest change in price. The horizontal demand curve represents a theoretical construct, and in reality, most demand curves exhibit some degree of curvature, reflecting the fact that consumers have varying price sensitivities.

Related terms

Elastic Demand:

Elastic demand refers to a situation where the quantity demanded changes proportionately more than the change in price, resulting in an elastic demand curve.

Perfect Elasticity: Perfect elasticity is a situation where the quantity demanded changes infinitely in response to even the smallest change in price, resulting in a perfectly 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 constant elasticity demand function.