Question

Explain graphically the following:

Perfectly Elastic Demand

Answer 1

Perfectly Elastic Demand happens when consumers are infinitely sensitive to price fluctuations. Buyers are willing to buy an infinite or endless quantity of a commodity at a fixed market price. However, even the smallest price rise will cause the quantity demanded to fall to absolute zero.

Using the percentage method formula, the price elasticity coefficient (E_d) is equal to infinity.

E_d = `(% "Change in Quantity Demanded")/(% "Change in Price") = ∞`