Price Elasticity of Demand at the Point of Intersection

When a straight line demand curve meets two axes, the price elasticity of demand at the point where the curve meets the Y-axis would be infinity. This is because:

- At this point, the price of the good is zero. Therefore, any increase in price would result in an infinite percentage change in price, causing the quantity demanded to drop to zero. Hence, the demand is perfectly elastic at this point.
- Mathematically, the price elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price. When the price is zero, any percentage change in price would result in an infinite percentage change, making the denominator zero. Therefore, the price elasticity of demand would be infinity.

Implications of Perfectly Elastic Demand

A perfectly elastic demand curve has several implications for the market:

- The market is highly competitive, with many firms producing identical goods.
- Firms have no market power to influence the price, as buyers can easily switch to other suppliers if they raise their prices.
- The price elasticity of demand is infinite, meaning that buyers are extremely sensitive to changes in price.
- The marginal revenue for each additional unit sold is equal to the price, as the firm cannot charge a higher price without losing all its customers.
- The firm's supply curve is a horizontal line at the market price, as it can sell any quantity at that price.

Examples of Perfectly Elastic Demand

Some examples of goods with perfectly elastic demand include:

- Agricultural commodities, such as wheat, rice, and soybeans, where many farmers produce the same crops, and buyers can easily switch to alternative sources if the price rises.
- Digital goods, such as e-books, software, and music downloads, where the production costs are minimal, and the supply is virtually infinite.
- Goods with close substitutes, such as generic medicines, store-brand products, and off-brand electronics, where buyers can easily switch to similar goods if the price of a particular brand increases.