OECD Glossary of Statistical Terms (2024)

Demand curves are defined for both the industry and the firm. At the industry level, the demand curve is almost always downward sloping. However, at the firm level the demand curve may be downward sloping or horizontal. The latter is the case of the firm in a perfectly competitive industry whose demand is infinitely elastic. When the firm’s demand curve is downward sloping, the firm has some control over its price.

The price elasticity of demand is determined by a number of factors, including the degree to which substitute products exist (see cross price elasticity of demand). When there are few substitutes, demand tends to be inelastic. Thus, firms have some power over price. When there are many substitutes, demand tends to be elastic and firms have limited control over price.