Question

1. Which of the following is not a characteristic of the perfectly competitive market?

   	A.	Firms are price setters
   	B.	Firms can easily enter and exit the market
   	C.	All firms produce identical products
   	D.	There are many buyers and sellers in the market

Answer 1

Perfect competition is a sort of market which is characterized by the existence of large number of buyers and sellers dealing in homogenous products and the price of the product is determined by the market supply and demand and the individual seller or buyer has no control over the price of the product. The following are the basic features of a perfectly competitive market.

1. Large number of buyers and sellers.

Since the number of sellers is so large, no individual seller can influence the market price either by increasing or decreasing his volume of output. Thus each seller is a price taker and an output adjuster.

2. Homogenous product.

The product of sold in this market is identical in all respect. The buyers cannot find any difference between the products sold by different firms.

3. Perfect knowledge.

The buyers and sellers are fully aware of the prevailing price in the market. Thus there is no possibility of price discrimination.

4. Free entry and exit.

The firms have freedom to enter into the market and the existing firms have freedom to quit the industry.

5. Perfect mobility of factors.

The factors can freely move from one firm to another so a single factor price prevailing in the industry.

6. No transport cost.

Switching of consumers from one seller to another does not involve any cost of transportation. This also contributes to the existence of single price throughout the market.

Since the firms are unable to influence the market price by their individual action. They are not price setters.

Answer: A. Firms are price setters.