Does perfect elasticity of demand really exist in real world?

View QuestionsCategory: EconomicsDoes perfect elasticity of demand really exist in real world?
Anonymous asked 6 years ago

The question is about perfect elasticity. Does it actually exist? If so, can anyone give an example?

1 Answers
Amir Staff answered 6 years ago

Perfectly elastic demand means any change in price will result in infinite change to the quantity demanded. In other words, if a firm increased price just by 1%, it would see all its demand evaporate. If demand is perfectly elastic, then demand will be a horizontal line on the demand and supply diagram.
This happens in the situations of perfect competition. 
A good example is the foreign currency exchange. If you are buying foreign currency, it is likely to exhibit the features of perfect competition. A buyer could choose from many different sellers. The product (e.g. dollars) is identical. Perfect information about the cheapest would be easy to find.
Therefore, if one firm increased the price of dollars, above market equilibrium – no one would buy from that firm. They would buy from others who sell at equilibrium price.