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Chapter 7: Q.1 (page 211)

Firms in a perfectly competitive market are said to be 鈥減rice takers鈥濃�攖hat is, once the market determines an

equilibrium price for the product, firms must accept this price. If you sell a product in a perfectly competitive market,

but you are not happy with its price, would you raise the price, even by a cent?

Short Answer

Expert verified

If you raise the price even a cent, all of the buyers will switch to the other merchants since they will acquire the exact same product at a lower price.

Step by step solution

01

Introduction

Complete Competition refers to a market situation in which there are a large number of buyers and sellers, all of whom have perfect knowledge of the market, commodities are homogeneous, and all enterprises are price takers.

02

Explanation

Theforcesofdemandandsupplyareusedtoachievemarketequilibriuminaperfectlycompetitivemarket.
Whenthepriceistoohigh,demanddecreases,andwhendemandfalls,onlyadecreaseinpricewillcausedemandtorise,allowingthemarkettocorrectitself.
Becauseallbuyersandsellersknowalloftheinformationavailable,andbecausetherearesomanybuyersandsellersdealingwithsimilarproducts,nosinglefirmwillbeabletoaffecttheprice.
Buyersareawarethatothersellersaresellingatalesserprice,thusifafirmraisesitspricing,itwillhavenobuyers.

If you're a vendor in a completely competitive market and you're unhappy with the pricing, you won't raise it even a cent because you'll know that if you do, all the buyers will go to the other sellers since they'll obtain the exact same thing at a lower price.

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