Question

Why do firms within a perfectly competitive market face perfectly elastic demand curves, while the market demand curve is not perfectly elastic?  

Answer 1

In a perfectly competitive market all the products are categorised to be perfect substitutes and the demand curve for the individual small firms that participate in the market is perfectly elastic reflecting that these firms are price takers as has no control over price. Consequently in perfectly competitive markets the individual firms face horizontal demand​ curve. On contrast the market demand curve is not perfectly elastic in perfectly competitive markets reflecting that as the price of normal good increases, the quantity demanded will decline as demonstrated by the Law of demand and supply.