Explain why the demand curve for the market is downward sloping but is horizontal or completely elastic for an individual firm.
The Demand Curve:
The demand curve for a good or service shows the different quantities that are demanded at different price levels. In a perfectly competitive market, the demand curve for an individual firm is horizontal while the market demand curve for all the firms in the market is downward sloping.
Answer and Explanation:
For an individual firm in a perfectly competitive market, the demand curve is perfectly elastic, thus, it is a horizontal curve. This is because a perfectly competitive firm is a price taker and it cannot influence the market price in order to increase their sales.
The market demand curve is downward sloping. This is because a change in the total output produced by all the firms in the market will have an effect on the market price.
Become a member and unlock all Study Answers
Try it risk-free for 30 daysTry it risk-free
Ask a question
Our experts can answer your tough homework and study questions.Ask a question Ask a question
Learn more about this topic:
from Introduction to Macroeconomics: Help and ReviewChapter 7 / Lesson 11