Which of the following characteristics of competitive markets is necessary for firms to be price takers? (i)
There are many sellers.
(ii)
Firms can freely enter or exit the market.
(iii)
Goods offered for sale are largely the same.
A)(i) and (ii) only
B)(i) and (iii) only
C)(ii) only
D)(i), (ii), and (iii)

Question

Quizplus · Accepted Answer

In a competitive market, firms must be price takers, meaning they have no control over the price of the goods they sell. This is only possible if the goods offered for sale are largely the same, eliminating the ability for firms to differentiate and charge different prices. Additionally, there must be many sellers in the market to prevent any individual firm from having enough market power to set its own price. While the option of freely entering or exiting the market is helpful in ensuring the existence of many sellers, it is not strictly necessary for firms to be price takers.

Which of the Following Characteristics of Competitive Markets Is Necessary