Question

Which of the following is NOT a characteristic of a perfectly competitive market?

A. An individual producer can lower the market price if it is advantageous for him/her

B. Suppliers are price takers

C. Neither producers nor consumers are price takers

D. Demanders are price takers.

Answer 1

Ans-option A and option C.

A perfect competition is a form of market where there is a large number of buyers and sellers of a product/commodity and homogenous products are sold and the prices of those products are determined by the forces of market demand and forces of market supply.

Option A is not a feature of perfectly competitive market because an individual producer can not lower the market price and also there is no sense to do so,even if it advantageous for him/her.As per the perfectly competitive market,it cannot be advantageous for the producer to lower the price as we know that a producer can sell any quantity of his product at the existing market determined prices,so why should he lower the price.Also we know that there are large number of buyers and sellers and also the buyers and sellers have the perfect information regarding market.In such a scenario,if an individual producer lowers his price all the market buyers will start purchasing from his firm.But we know that an individual producer is a small part of the sellers in the market and has limited producing capacity and so he would not be able to cater to the demands of the whole buyers in the market.

Option C is not a feature because we all know that in a perfectly competitive market,all the buyers and sellers are price takers,not the price makers.If a producer raises his price,it will lead to zero demand of its products as its competititors can provide required quantity at cheaper rates.Also individual buyers demand such a small quantity of total demand that it cannot influence the prices by varying its demand.