If the demand curve is parallel to the x-axis, then what type of market will it be?
Show Hint
- Perfect competitive
- Monopolistic
- Oligopoly
- Monopolistic competitive
The Correct Option is A
Solution and Explanation
Step 1: Understanding the Concept:
The question links the shape of a firm's demand curve to a specific market structure. A demand curve parallel to the x-axis represents perfectly elastic demand.
Step 2: Detailed Explanation:
A perfectly elastic (horizontal) demand curve is a characteristic of an individual firm in a perfectly competitive market. In this market, there are many firms selling a homogeneous product. Each firm is a "price-taker" and has no control over the market price. The firm can sell as much as it wants at the prevailing market price, but if it raises its price even slightly, its sales will drop to zero because buyers can purchase the identical product from numerous other sellers. This is why its demand curve is perfectly elastic.
Step 3: Final Answer:
A horizontal demand curve is characteristic of a firm in a perfect competitive market. Therefore, option (A) is the correct answer.
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