A good with a horizontal demand curve has a price elasticity of demand equal to:

A good with a horizontal demand curve has a price elasticity of demand equal to:

• A. 0
• B. Infinity
• C. 1
• D. Less than 1

Answer: (B)

A good with a horizontal demand curve is a case of perfectly elastic demand. That means at the given price, buyers are willing to purchase any amount, but even a tiny increase in price would drop quantity demanded to zero, while a tiny decrease would lead to a large increase. Because price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price, the quantity responds infinitely to price changes, so the elasticity is infinite. Other levels of elasticity (zero for perfectly inelastic, one for unit elastic, less than one for inelastic) don’t fit a horizontal demand curve, where demand is as responsive as it can be.

A good with a horizontal demand curve is a case of perfectly elastic demand. That means at the given price, buyers are willing to purchase any amount, but even a tiny increase in price would drop quantity demanded to zero, while a tiny decrease would lead to a large increase. Because price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price, the quantity responds infinitely to price changes, so the elasticity is infinite. Other levels of elasticity (zero for perfectly inelastic, one for unit elastic, less than one for inelastic) don’t fit a horizontal demand curve, where demand is as responsive as it can be.