When there are many buyers and sellers of a good and the product sold is identical across firms,:
A) the demand curve for each firm's output is perfectly elastic.
B) the industry demand curve is perfectly elastic.
C) the demand curve for each firm's output is perfectly inelastic.
D) the industry demand curve is perfectly inelastic.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, there are many buyers and sellers of a standardized product, so each firm has no market power and must accept the market price. As a result, the demand curve for each firm's output is perfectly elastic, meaning that the firm can sell as much as it wants at the market price, but cannot charge a higher price without losing all its customers. The industry demand curve is not perfectly elastic, but rather downward-sloping, reflecting the fact that as the total quantity demanded increases, the market price decreases.

When There Are Many Buyers and Sellers of a Good