Perfectly elastic
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In this case, the demand is horizontal at some price. Clearly, for an individual consumer, this situation could not occur because it implies that at even an infinitesimally higher price the consumer would buy nothing, whereas at that particular price, the consumer would buy an indeterminately large amount. This situation is not at all an unreasonable description of the demand curve facing a single seller in a perfectly competitive market, such as the wheat market. At the current market price of wheat, an individual farmer could sell all she has. If, however, she held out for a price above market price, it is reasonable that she would not be able to sell any at all because all other farmers’ wheat is a perfect substitute for hers, so no one would be willing to buy any of hers at a higher price. In this case, we would say that the demand curve facing a perfectly competitive seller is
perfectly elastic .
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4.1. Own-Price Elasticity of DemandPerhaps an individual’s demand for, say, mustard might obey this description. Obviously, in that price range, quantity demanded is not at all sensitive to price and we would say that demand is perfectly inelastic in that range.
<span>In the second case, the demand is horizontal at some price. Clearly, for an individual consumer, this situation could not occur because it implies that at even an infinitesimally higher price the consumer would buy nothing, whereas at that particular price, the consumer would buy an indeterminately large amount. This situation is not at all an unreasonable description of the demand curve facing a single seller in a perfectly competitive market, such as the wheat market. At the current market price of wheat, an individual farmer could sell all she has. If, however, she held out for a price above market price, it is reasonable that she would not be able to sell any at all because all other farmers’ wheat is a perfect substitute for hers, so no one would be willing to buy any of hers at a higher price. In this case, we would say that the demand curve facing a perfectly competitive seller is perfectly elastic .
Exhibit 21. The Extremes of Price Elasticity
Own-price elasticity of demand is our measure of how sensitive the quantity demanded is to c Summary
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