Because many good substitutes exist for a competitive firm's product, the demand curve that it faces is
A)unit-elastic.
B)perfectly inelastic.
C)perfectly elastic.
D)inelastic only over a certain region.

Question

Quizplus · Accepted Answer

If many good substitutes exist for a competitive firm's product, consumers have many options to switch between substitutes, and will be very responsive to small changes in price. Therefore, the demand curve that the firm faces will be completely horizontal, or perfectly elastic. Even a small increase in price will cause consumers to switch to a substitute, resulting in the firm losing all its customers.

Because Many Good Substitutes Exist for a Competitive Firm's Product