Association of Chartered Certified Accountants (ACCA) Certification Practice Test

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Prepare for the ACCA Certification Exam. Master concepts with flashcards and multiple-choice questions, each with explanations and hints. Get exam ready today!

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What is the position of the demand curve when there is perfect elastic demand?

  1. It is a vertical straight line

  2. It is a horizontal straight line

  3. It is a diagonal line down from left to right

  4. It is a U-shaped curve

The correct answer is: It is a horizontal straight line

When demand is perfectly elastic, it indicates that consumers are willing to purchase any amount of a good at a specific price, but none at any price above that. This creates a scenario where the quantity demanded changes infinitely with any change in price. Therefore, the demand curve takes the shape of a horizontal straight line. This horizontal line reflects that the price remains constant regardless of the quantity demanded. For example, if a product is priced at a certain level, consumers will buy as much as they want at that price, but if the price increases even slightly, the quantity demanded drops to zero. This characteristic is typical of markets where there are many substitutes available, and consumers can easily switch between similar products based on price changes. The other options illustrate different types of demand elasticity: a vertical line signifies perfectly inelastic demand (where quantity demanded does not change regardless of price), a diagonal downward sloping line indicates normal elastic demand (where quantity demanded decreases as price increases), and a U-shaped curve does not represent typical demand scenarios.