Question

Which of the following characterizes a perfectly competitive market?

A downward-sloping demand curve facing the firm.
A selling price at the market-established equilibrium price.
A few firms that compete by changing price.
A horizontal demand curve for the market.

Answer 1

In perfect competition all the firms are price takers. Therefore, the selling price remains constant for all the firms. The price is determined through demand and supply forces.

Since, the firms are price taker therefore, the demand curve faced by them is horizontal and the demand curve faced by the market is downward sloping.

No firm can affect the market price since, a large number of firms are operating in the industry.

So, first option is incorrect as demand curve faced by individual firm is horizontal and parallel to x axis.

Third Option is also incorrect. No firm has market power so they cannot influence the price.

The demand curve faced by market is downward sloping. 4th option also incorrect.

A Selling price at market established equilibrium price.

Option B is correct.

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