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Perfectly elastic supply curve: the fixed-price benchmark

A perfectly elastic supply curve is horizontal: the model holds price fixed and lets quantity adjust without limit.

Maya Lindqvist

By Maya Lindqvist · Senior Technology Correspondent

3 min read

A perfectly elastic supply curve is a horizontal line at a fixed price. At that price, the model allows suppliers to provide any quantity; below it, quantity supplied falls to zero, according to EzyEducation.

Its price elasticity of supply equals infinity. Lumen Learning describes perfect elasticity as an unrealistic extreme, so the graph is a theoretical benchmark rather than a literal claim of unlimited production.

How to read the graph

Price is on the vertical axis and quantity supplied is on the horizontal axis. A perfectly elastic supply curve runs horizontally at a particular price, often labeled P*, meaning different quantities are associated with the same price.

AmosWEB defines the case as one in which an arbitrarily small price change produces an infinitely large change in quantity. “Infinite” is a feature of the model’s response, not a quantity a firm is expected to produce in practice.

  • At P*: suppliers are modeled as willing to provide any quantity.
  • Below P*: quantity supplied is zero.

A threshold-price example

Lumen Learning uses an instructional hypothetical of a cookie seller whose costs, including inputs and time, are $3 per cookie. In the perfectly elastic model, the seller supplies at $3 but supplies nothing below $3.

The example shows the relationship the horizontal curve represents: a fixed acceptable price and a quantity that adjusts in the model.

What happens when demand rises

With perfectly elastic supply at P*, an increase in demand raises equilibrium quantity while price stays at P*. The new equilibrium moves to the right along the same horizontal supply curve.

A Federal Reserve discussion paper describes this as the assumption that supply can meet any increase in demand without a price increase. The paper also says an elastic supply curve produces a large quantity response and a small price response to a positive demand shock; perfect elasticity is the fixed-price limit of that result.

Perfectly elastic versus highly elastic supply

Highly elastic supply has a large but finite elasticity. Perfectly elastic supply has infinite elasticity by definition and is shown by a horizontal curve.

The distinction matters when reading estimates. The Federal Reserve paper reported a pooled machinery-supply elasticity of about 5 in its sample. That is finite, so it is not the perfectly elastic benchmark.

How it differs from perfectly inelastic supply

Perfectly inelastic supply is the other polar case. Lumen Learning represents it with a vertical curve: quantity supplied stays the same as price rises or falls, and elasticity is zero.

  • Perfectly elastic: horizontal curve; fixed price in the model; elasticity equals infinity.
  • Perfectly inelastic: vertical curve; fixed quantity in the model; elasticity equals zero.

Frequently asked questions

Why is a perfectly elastic supply curve horizontal?

It is horizontal because the model associates any quantity supplied with one fixed price. AmosWEB and Lumen Learning describe perfectly elastic supply as the infinite-elasticity case.

How does a demand increase affect perfectly elastic supply?

Quantity increases while price remains at the fixed level of the horizontal supply curve. A Federal Reserve discussion paper describes the assumption as supply meeting increased demand without a price rise.

Are real-world supply curves perfectly elastic?

Lumen Learning describes perfectly elastic supply as an unrealistic extreme. Supply can be highly elastic with a large but finite response, as illustrated by the Federal Reserve paper’s pooled machinery-supply estimate of about 5 in its sample.

Sources