Future Business Leaders of America (FBLA) Marketing Practice Test

How does the demand curve appear in a purely competitive market?

1. It slopes upward

2. It appears straight

3. It fluctuates dramatically

4. It is undefined

The correct answer is: It appears straight

In a purely competitive market, the demand curve for an individual firm is represented as a horizontal line at the market price. This indicates that the firm can sell any quantity of its product at the prevailing market price, but it cannot influence the price itself due to the nature of competition and the large number of firms present in the market. The demand curve is considered straight (or perfectly elastic) because each firm is a price taker—it accepts the market price without any ability to alter it. This contrasts with other market structures where demand might slope downward or be influenced by the firm’s pricing strategies. The choices that suggest an upward slope, dramatic fluctuations, or being undefined do not accurately reflect the characteristics of individual firm demand in a purely competitive market. An upward-sloping demand would imply that as prices increase, demand also increases, which is not the case. Fluctuating demand contrasts the stable price firms face, and an undefined demand suggests a lack of clarity that is not present in a purely competitive setting where demand is straightforwardly determined by the market price.