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JAMB Economics 1989 Question 16

Question 16

Market Structures

For a purely competitive industry, a fundamental requirement of the demand curve faced by individual firms is that it should be

  1. A.downward sloping and price inelastic
  2. B.perfectly price elastic
  3. C.downward sloping but price inelastic
  4. D.perfectly price inelastic.
Show the answer and explanation

Answer: B (perfectly price elastic)

Explanation

Each firm is too small to affect price, so it faces a horizontal (perfectly elastic) demand curve at the market price.