A perfectly competitive business's demand curve is a(n):
A)downward-sloping straight line reflecting the law of demand
B)straight line parallel to the horizontal axis
C)upward-sloping straight line reflecting the constant value of price as output increases
D)straight line parallel to the vertical axis
E)downward-sloping convex curve

Question

Quizplus · Accepted Answer

In a perfectly competitive market, each firm faces a horizontal (perfectly elastic) demand curve because they are price takers - they must accept the market price and cannot influence it. This means that the firm can sell as much as they want at the given market price, but if they try to raise the price at all, they will not be able to sell anything. Therefore, the demand curve is a straight line parallel to the horizontal axis.

A Perfectly Competitive Business's Demand Curve Is A(n)