In perfect competition, a seller faces what kind of demand curve?

• A. Perfectly elastic demand curve
• B. Downward-sloping demand curve
• C. Upward-sloping demand curve
• D. Inelastic demand curve

Answer: (A)

In a perfectly competitive market, each seller takes the market price as given and can sell any quantity at that price. Because there are many identical sellers and easy entry, a single firm has no power to influence the price. If it tries to charge even a tiny bit more than the going price, buyers switch to other sellers, so the quantity it can sell at that price would drop to zero. If it sells at the market price, it can sell any amount, and the price stays the same. This behavior makes the demand facing an individual firm perfectly elastic—a horizontal line at the market price. The other shapes would imply some price-setting power or different responsiveness, which doesn’t occur in perfect competition.