Question

The degree of control over its output price that any seller has is limited by

a. the existence of actual competition in the market.

b. the existence of potential competition from producers who might try to enter the market.

c. the elasticity of demand for the product.

d. all of the above.

Answer 1

Answer : Option d) all of the above

The degree of control over its output price that any seller has is limited by all of the options given above.

Like say if there's a presence of good amount of competition in the market then the seller cannot exert control over its output price, since if he tries to increase price then it will potentially lose demand due to the fact that demand will shift to the competitors selling at a lower price. Thus in a perfectly competitive market where there are many sellers, each seller takes the price as given.

Similarly potential competitors who might try to enter the market can do so by selling at a lower price and thereby undercutting the market. Thus the presence of potential competitors also limits the ability to control the price for a seller in the market.

The elasticity of demand for a product is one more factor which limits the ability to exert control over its output price by a seller. A higher elastic demand means greater sensitivity to price changes. Hereby a small proportion increase in price of the product can decrease quantity demanded by a higher proportion and thus it becomes difficult for the seller to exert control over its output price. Inelastic demand of the product on the other hand helps in exerting higher degree of control over the price.