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actuarialmath
02-15-2008, 11:05 AM
A firm's demand curve in a perfect competition is horizontal, why is it?
I understand that the agricultural goods such as corn and rice have market structures that approximate perfect competition. But corns and rices are necessities, which have a vertical demand curve. Where is wrong in my point?

Actuarialsuck
02-15-2008, 11:51 AM
"Under Perfect Competition, the firm faces a horizontal demand curve. It can sell any quantity desired at the market price, but cannot sell anything above the market price."

http://www.econmodel.com/classic/terms/perfectcompetition.htm

Does that clarify it?

actuarialmath
02-15-2008, 12:53 PM
I understand that a firm's demand curve in a perfect competition is horizontal.
But I mean
(1)On one hand, agricultural goods such as corn and rice have market structures that approximate perfect competition, so their demand curve is horizontal.
(2) However, on the other hand, corns and rices are necessities, which have a vertical demand curve.
(1) and (2) are conflict. I know I have some misunderstanding, but where is it?
Thanks a lot.

Actuarialsuck
02-15-2008, 01:08 PM
I think the fact that it's PC "overpowers" the fact that they are necessities. (I'm not even sure of that fact I would think there are other subst. for them make the curve less and less vertical).

vjvj
02-15-2008, 01:13 PM
I understand that a firm's demand curve in a perfect competition is horizontal.
But I mean
(1)On one hand, agricultural goods such as corn and rice have market structures that approximate perfect competition, so their demand curve is horizontal.
(2) However, on the other hand, corns and rices are necessities, which have a vertical demand curve.
(1) and (2) are conflict. I know I have some misunderstanding, but where is it?
Thanks a lot.

Corn isn't a necessity. You don't need it to survive. You can live your life perfectly well if you never have any corn.

actuarialmath
02-15-2008, 01:42 PM
Corn isn't a necessity. You don't need it to survive. You can live your life perfectly well if you never have any corn.


Yes, I agree.
Corn is not a necessity, but water is.

Actuarialsuck
02-15-2008, 02:53 PM
Yes, I agree.
Corn is not a necessity, but water is.

You were talking about rice and corn. If you want to talk about water now, that's fine but look at the supply of water also. Farmers don't produce water, it's out there as a natural resource. If you want to create a scenario where water is scarce, then you should treat that differently. You can't just jump products to prove your point. Each one has its own "conditions" associated with it.

CalBear07
02-15-2008, 03:32 PM
The difference is that you are comparing the demand for all rice versus the demand for any given firm's rice. If you are looking at all rice in general, the demand curve is approximately vertical because people need rice to survive, and would be willing to pay nearly any price for it because without it, they would die (this assumes that rice is a true necessity; in reality, there are obviously alternatives to rice). However, for a firm in perfect competition, their individual demand curve is horizontal because if they were to raise their price even a penny, there are plenty of OTHER firms that consumers can buy their rice from.