A perfectly elastic demand curve which would have a horizontal shape indicates “extreme price sensitivity” which means that the tiniest price increase causes the demand to fall to zero for the analyzed good. In economic theory, a good example of a perfectly elastic demand curve is the demand curve that firms face in competitive markets. The reason why competitive firms face a perfectly elastic demand curve is that elasticity is greater when there are lots of close substitutes available. In this case, the competitive firm is selling a product that has many perfect substitutes since in the competitive markets, by definition, there are many sellers and all sellers sell identical products