Perfectly Elastic
What is Perfectly Elastic?
Perfectly elastic demand is when any change in price leads to an infinite change in quantity demanded.
In perfectly elastic demand, consumers are infinitely sensitive to price changes. This means that even the slightest increase in price will cause the quantity demanded to drop to zero. Perfectly elastic demand is a theoretical concept that is not often observed in real markets.
Perfectly Elastic: a worked example
A single wheat farmer in a perfectly competitive market faces a horizontal demand curve at the market price of $5 per bushel and sells 4,000 bushels, so total revenue is 4,000 × $5 = $20,000. Raise the asking price to $5.10, a 2 percent increase, and quantity demanded falls to zero because every buyer switches to an identical bushel from another farm. Run the formula over that jump and the ratio is 100 ÷ 2 = 50. Shrink the price increase to a single cent, a 0.2 percent change, and the same total loss of sales gives 100 ÷ 0.2 = 500. Each smaller price step drives the ratio higher with no ceiling, which is why the curve itself carries a coefficient of infinity rather than any finite number like 50. Cutting price to $4.90 is equally pointless: the farmer already sells all 4,000 bushels at $5, so the lower price only trims revenue to 4,000 × $4.90 = $19,600.
The mistake students make with perfectly elastic
The flat shape invites students to read the slope as the elasticity, so they report a coefficient of zero for perfectly elastic demand because a horizontal line has zero slope. Slope and elasticity are different measures: slope compares raw units, elasticity compares percentage changes. Zero belongs to the vertical perfectly inelastic curve, where quantity never budges. Anchor the pair by the letters themselves. Perfectly elastic demand lies flat like the crossbar of an E at one price, and perfectly inelastic demand stands upright like an I.
Perfectly Elastic questions
Is a perfectly elastic demand curve horizontal or vertical?
A perfectly elastic demand curve is horizontal, drawn as a flat line at a single price. Buyers will purchase any quantity at that price and nothing at all above it, so the seller has no power to charge more. The vertical curve belongs to perfectly inelastic demand, where the same quantity is bought no matter what the price is. Confusing the two flips the elasticity coefficient from infinity to zero, which reverses every conclusion about tax burden and seller pricing power.
Why does a firm in perfect competition face perfectly elastic demand?
A perfectly competitive firm sells a product identical to what hundreds of rivals sell, and it is far too small to move the market price. Charging one cent above that price sends every buyer to a rival at no inconvenience, so quantity demanded drops to zero. Charging less is wasteful, because the firm can already sell every unit it produces at the going price. The result is a flat demand curve at the market price, which also makes marginal revenue equal to price for that firm.
Does perfectly elastic demand exist in real markets?
Perfectly elastic demand works as a benchmark rather than something measured exactly. Markets for standardized commodities traded by many small sellers come close, because buyers treat the units as interchangeable and can switch suppliers instantly. Most goods carry some brand loyalty, search cost, or shipping cost that lets a seller nudge price up without losing every customer. Exam questions use the perfectly elastic case to isolate what happens when substitution is instant and complete.
Formula / Example
This is the live Elasticity sandbox. Drag the curves, or open the full version.
Related terms
Common comparisons
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