Is it considered theoretically impossible for the demand curve to be perfectly vertical or horizontal (infinite elasticity or inelasticity)?
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It sounds unlikely.
The demand curve couldn't be vertical at 0. Suppose their was a pill that gives you Super AIDS.. surely someone out there would want one.
The demand curve couldn't be vertical at a non-zero value. No one can pay an infinite amount of money for something.
A horizontal demand curve makes no sense. The quantity is undefined at every price. I can see a step function as being plausible if there were only one potential consumer of something. Or if potential consumers banded together and agreed to pay no more than a certain price for something, and none of them were willing to cheat and they all actually wanted the good.
No in either case:
Near Vertical Demand Curve:Violates the Law of Scarcity: No person has infinite resources to trade for something. So there is a limit on the demand curve. Even their own life, they could only trade what value they have which is limited.
Horizontal Demand Curve: Violates Law of Diminishing Marginal Utility. Clearly people would not be willing to buy an infinite amount of anything at the same price of the first unit.
Bogart,
Who ever said a demand curve had to be linear and continuous? I could certainly imagine a demand curve that was non-linear or kinked so that it was perfectly vertical or horizontal over some ranges, even if it wasn't vertical or horizontal for all ranges. For example, plenty of textbooks draw demand curves as step functions where the demand curve is alternativing between being perfectly vertical and perfecticaly horizontal (David Friedman's textbook for example).
Here are some examples to illustrate:Vertical Demand Curve: If the price is greater than $200 I'm not going to buy a washing machine. If the price drops below $200 I will buy exactly 1 washing machine. Even if they gave washing machines away for free, I would not get a second. My demand curve is kinked and vertical over this range.
Horizontal Demand Curve: If the price of Dunhill cigarettes are greater than $5 per pack, I will not buy a pack. If the price drops below $5 a pack, I will buy as many as they have until I reach 15 packs, over this range my demand curve is horizontal. However, after my 15th pack, I won't buy any more at any price.
So to answer the op's question, yes it is theoretically possible for a demand curve to be either vertical or horizontal.
Ambition is a dream with a V8 engine - Elvis Presley
Ok, you could have a demand curve that is vertical for finite ranges of prices and have one that is horizontal for finite ranges of volumes.
Bogart: Ok, you could have a demand curve that is vertical for finite ranges of prices and have one that is horizontal for finite ranges of volumes.
You can't have an infinitely vertical demand curve (because of income, you can't have an infinite supply of money), and you cannot have any horizontal stretch in a demand curve (it either has to be vertical or downward sloping). A horizontal demand curve implies that at one given price (lets say $1) you have two discrete quantities demanded (Lets say 5 apples and 10 apples). Well, which one is it? How is that possible? We know you can't even have that for a demand curve that represents two people, if on my individual demand curve at a price of $1 I buy 5, and on Jim's he would buy 10, the total demand curve would have 15 demanded at a price of $1, not 5 and 10.
Black,
You are misreading the horizontal demand curve. Return to my example. If Dunhills cost more than $5 I wont buy any. If they cost $5, I will buy up to 15 packs. This doesn't mean I either want 1 pack or 15 packs, it means I would buy *up to* 15 packs if they are available at that price (think about Geometry, two points define a line, but there are actually infinte amount of points along the line). But how much I want isn't the only thing to be considered. Specifically we have to consider the supplier. Lets say that for whatever reason it costs my supplier $4 per pack for the first packs and $8 for each additional pack. If I am the only purchase that buys these luxury smokes and he sells them to me with a $1 markup, he will only keep 5 packs on hand. I would certainly like to buy more packs from him, but since I am not willing to pay more than $5 per pack, it would not be profitable for him.
Hope this helps.
Student:If the price is greater than $200 I'm not going to buy a washing machine. If the price drops below $200 I will buy exactly 1 washing machine. Even if they gave washing machines away for free, I would not get a second. My demand curve is kinked and vertical over this range.
I fail to see how it's kinked though.
"If we wish to preserve a free society, it is essential that we recognize that the desirability of a particular object is not sufficient justification for the use of coercion."
Basically, I was saying it was a step function with a single step. Horizontal at $200 from 0 to 1, then vertical at all prices bellow $200. So it kinda looks like a giant number seven if you draw it out.
Please elaborate if this doesn't answer your question.
Student: Basically, I was saying it was a step function with a single step. Horizontal at $200 from 0 to 1, then vertical at all prices bellow $200. Please elaborate if this doesn't answer your question.
Basically, I was saying it was a step function with a single step. Horizontal at $200 from 0 to 1, then vertical at all prices bellow $200.
Got it.
Student: Black, You are misreading the horizontal demand curve. Return to my example. If Dunhills cost more than $5 I wont buy any. If they cost $5, I will buy up to 15 packs. This doesn't mean I either want 1 pack or 15 packs, it means I would buy *up to* 15 packs if they are available at that price (think about Geometry, two points define a line, but there are actually infinte amount of points along the line). But how much I want isn't the only thing to be considered. Specifically we have to consider the supplier. Lets say that for whatever reason it costs my supplier $4 per pack for the first packs and $8 for each additional pack. If I am the only purchase that buys these luxury smokes and he sells them to me with a $1 markup, he will only keep 5 packs on hand. I would certainly like to buy more packs from him, but since I am not willing to pay more than $5 per pack, it would not be profitable for him. Hope this helps.
Thats not how a demand curve works. At a given price there is a given quantity to be demanded. Not up to, but a specific quantity. So on your demand curve at a price of $5 you will demand 15. You may not be able to buy 15 because the seller may not want to supply 15 for a price of $5 a pack, but the construction of the demand curve is completely separate from the construction of the supply curve.
So, for example, if at a price of $10 30 apples are demanded but only 20 apples are supplied, than a shortage will occur and sellers will raise the price in order to decrease the quantity demanded and increase the quantity supplied until the market hits equilibrium (or a new condition disrupts the marketplace, which will probably happen first). At a price of $10 the people don't demand up to 30 but demand 30, what determines how many they will actually get at a given price is how much the sellers will supply, but like I said earlier, that doesn't change the actual demand curve and instead depends on the intersection of the two curves.
To take a quote from Rothbard in Man, Economy, and State: (p721)
As a matter of fact, it is clear from our construction of the demand curvethat there can be no stretch of the demand curve, however small,that is horizontal, although there can be small vertical stretches.
I don't have my MES with me right now, but in Chapter 2 he talks extensively about supply and demand and the construction of demand/supply curves. This is from when he criticizes Perfect Competition and is a quote I remembered enough of to find it in the MES online PDF.
Then I am not sure how you would draw the demand curve in my Dunhills example. If you simply draw a gap between 0 and 15 it would look as if I would ONLY be willing to buy 15 packs at a price of $5 per pack. In fact, I would buy 1 pack at $5, a second pack at $5, and on and on.
I read the section you quoted from MES and his argument isn't really clear to me. I also scanned Chapter 2 and I didn't find a section where discusses the impossibility of a horizontal demand curve.
If you could clarify why Rothbard thinks a horizontal demand curve is impossible, I would greatly appreciate it.
Student: Black, Then I am not sure how you would draw the demand curve in my Dunhills example. If you simply draw a gap between 0 and 15 it would look as if I would ONLY be willing to buy 15 packs at a price of $5 per pack. In fact, I would buy 1 pack at $5, a second pack at $5, and on and on. I read the section you quoted from MES and his argument isn't really clear to me. I also scanned Chapter 2 and I didn't find a section where discusses the impossibility of a horizontal demand curve. If you could clarify why Rothbard thinks a horizontal demand curve is impossible, I would greatly appreciate it.
From the Price that quantity demanded would be zero ($6) to the price that quantity demanded would be 15 ($5), there would be a price for each discrete unit from 0 to 15. At a price of 5, you buy 15, on the graph you can't write that you will buy 1 OR 2 OR 3 OR 4....OR 15, you write than you will buy 15 at a price of $5. If you go to the store and you decide that you instead want 13, then your value scale (demand curve) changes to accommodate that.
I unfortunately don't have my MES with notes on me at the moment, so I'm going off the online pdf which is a harder to navigate through. If the argument still persists then in a couple of days I will have access to my book (I'm at home away from college and left my book in my dorm) and will be able to find what I am looking for better.
Essentially the argument is how you construct a demand curve (what I'm been referencing). Taking an earlier example of mine, lets say that at a price of $5 for each apple you demand 15 apples, and I demand 20 apples. If we wanted to construct our demand curve (The BlackNumero/Student demand curve) then we would add 15 and 20 together and record that at a price of $5, 35 apples would be demanded. With a horizontal demand curve however, we would have 15 and 20 separate, which would make no sense at all.
Thinking of it differently, any demand curve that has horizontal parts cannot be a demand function either. There has to be an independent variable (price) and with only one dependent variable (quantity demanded) in order for something to be a function. With a horizontal demand curve, there is more than one dependent variable for the independent variable($5) and so it cannot be a function.
BlackNumero: Essentially the argument is how you construct a demand curve (what I'm been referencing). Taking an earlier example of mine, lets say that at a price of $5 for each apple you demand 15 apples, and I demand 20 apples. If we wanted to construct our demand curve (The BlackNumero/Student demand curve) then we would add 15 and 20 together and record that at a price of $5, 35 apples would be demanded. With a horizontal demand curve however, we would have 15 and 20 separate, which would make no sense at all.
I am not sure what you mean. We would not have 15 and 20 separate. The quantity demand at $5 would still be 35.
There is really nothing special in constructing a market demand curve from individual demand curves no matter what its shape is. You will still follow the same basic procedure.
Maybe I am just not getting what you're driving at.
Student: I am not sure what you mean. We would not have 15 and 20 separate. The quantity demand at $5 would still be 35. There is really nothing special in constructing a market demand curve from individual demand curves no matter what its shape is. You will still follow the same basic procedure. Maybe I am just not getting what you're driving at.
If we constructed a horizontal demand curve, then we would have two or more different quantities demanded at one price. (15 and 20 instead of 35).I'll admit this argument is more useful when dismantling perfect competition theory which deals with a market demand curve.
To reclarify and go to your example which deals with individual demand curves:
Student: Horizontal Demand Curve: If the price of Dunhill cigarettes are greater than $5 per pack, I will not buy a pack. If the price drops below $5 a pack, I will buy as many as they have until I reach 15 packs, over this range my demand curve is horizontal. However, after my 15th pack, I won't buy any more at any price. So to answer the op's question, yes it is theoretically possible for a demand curve to be either vertical or horizontal.
This is the source of your problem. The construction of the demand curve is completely unrelated to the construction of the supply curve. At a price of $5, you will buy 15 packs. Not 1 OR 2 OR 3 ....OR 14 OR 15, but 15. There is no horizontal line from 1 to 15, but simply a dot at 15. If you go there and want 15 but they only have 10, then in Supply and Demand analysis a shortage will occur and the seller will raise the price from $5 to whatever will clear the market. Using your type of analysis then all Supply and Demand curves would be step functions with a line starting at 1 to the new quantity, and then a line below it to the greater quantity, and so on and so forth.