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A theoretical economic situation in which the interest of consumers in purchasing a business' product is extinguished if the price of the product rises or consumer interest rises to infinity if the price falls. In a perfectly elastic demand situation, the responsiveness of demand to a change in price or the price elasticity is infinite, thereby resulting in a flat demand curve.Read more: http://www.businessdictionary.com/definition/perfectly-elastic-demand.html
Demand is price elastic if a change in price causes a bigger percentage change in demand. It will have a PED of greater than one.
Goods will tend to be price elastic with the following characteristics:
With elastic demand, a tax will cause only a small rise in price. There will be a big fall in demand. Most of the tax will be borne by the producer. The consumer burden (increase in price) will be quite small.
Perfectly Elastic Demand
If demand is perfectly elastic, it means that at a certain price demand is infinite (A good with a very high elasticity of demand). In other words if a firm increased price by 1%, it would see all its demand evaporate. If demand is perfectly elastic, then demand will be horizontal.
Examples of Perfectly Elastic Demand
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 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 cheaper alternatives.
Similarly if you are buying potatoes from Covent garden, it is easy to check prices. Therefore, if a farmer increases price above the equilibrium demand will fall significantly, meaning demand is very elastic.