10) What type of demand (elastic or inelastic) do you think you would find in a perfectly competitive market (for each firm, not each product)? Why do you think this is true?

Answer 1

In a perfectly competitve market the assumption is that multiple suppliers are vying for a limited number of buyers where the purchase price (one type of variable) is fairly similar. If a firm increases it's price, then this change may trigger a reduction in demand (the other type of variable) for this firm's product since other competing firms are offering a similar product at a lower price. Hence, the reduced demand based on increased price to the customer represents a sensitifivity change, or what is elasticity.