Question

In a perfect competitive market demand curve is

• A. Parallel to x-axis
• B. Parallel to y-axis
• C. Making an angle of 45° from x-axis
• D. Making an angle of 60° from x-axis

Hint:

Remember the distinction: The industry demand curve in perfect competition is downward-sloping, but the firm's demand curve is horizontal because it's a price-taker.

Answer 1

The Correct Option is A

Step 1: Understanding the Concept:
The question is about the shape of the demand curve for an individual firm in a perfectly competitive market. It's important to distinguish this from the market demand curve.

Step 2: Detailed Explanation:
In a perfectly competitive market, there are numerous firms selling a homogeneous product. No single firm can influence the market price; each firm is a "price-taker." The market price is determined by the industry's overall demand and supply.
Since an individual firm must accept this market price, it can sell any quantity it wishes at that prevailing price. If it tries to charge a higher price, it will sell nothing, as buyers can go to numerous other firms. There is no incentive to charge a lower price, as it can sell all its output at the market price.
This situation means the demand for the firm's product is perfectly elastic. A perfectly elastic demand curve is a horizontal straight line parallel to the x-axis.

Step 3: Final Answer:
The demand curve for a firm in a perfectly competitive market is a horizontal line parallel to the x-axis. Therefore, option (A) is correct.