Association of Chartered Certified Accountants (ACCA) Certification Practice Test

What does a perfectly inelastic demand curve look like?

1. It is a horizontal straight line

2. It is a vertical straight line

3. It is a U-shaped curve

4. It is a diagonal line

The correct answer is: It is a vertical straight line

A perfectly inelastic demand curve is represented by a vertical straight line. This type of demand curve indicates that the quantity demanded for a good remains constant regardless of changes in price. In other words, consumers will purchase the same amount of the good or service no matter how much the price rises or falls. For example, this scenario can typically apply to essential goods, like life-saving medications, where consumers need the product regardless of its price. Since the quantity demanded does not change, the vertical line visually illustrates that even with varying prices along the y-axis, the quantity demanded remains fixed along the x-axis. In contrast, a horizontal straight line signifies perfectly elastic demand, where any price change causes an infinite change in quantity demanded. Other shapes like a U-shaped curve suggest varying degrees of elasticity, while a diagonal line indicates a normal negative relationship between price and quantity demanded, which is characteristic of typical demand scenarios. Thus, the vertical line is the correct representation of perfectly inelastic demand.