Explain why the demand curve for the market is downward sloping but is horizontal or completely...

Question:

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.


Learn more about this topic:

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The Market Demand Curve: Definition, Equation & Examples

from Introduction to Macroeconomics: Help and Review

Chapter 7 / Lesson 11
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