Consider the following statements about a perfectly competitive market:
(A) Since products are homogeneous, a buyer can buy from any firm and get the same product.
(B) Free entry and exit is essential for a large number of firms to exist.
(C) When one firm raises its price, its buyers cannot be served by the other firms.
(D) If entry into the market were restricted, the number of firms would still be large.
(E) A firm that raises its price above the market price loses all its buyers.
Which of the statements given above are correct?
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → (A), (B) and (E) only
(A) Since products are homogeneous, a buyer can buy from any firm and get the same product. — Correct. Homogenous means every firm’s product is identical.
(B) Free entry and exit is essential for a large number of firms to exist. — Correct. Easy entry is what lets many firms come into the market.
(C) When one firm raises its price, its buyers cannot be served by the other firms. — Incorrect. With so many firms, the buyers’ demand is readily accommodated by the others.
(D) If entry into the market were restricted, the number of firms would still be large. — Incorrect. With entry difficult or restricted, the number of firms could be small.
(E) A firm that raises its price above the market price loses all its buyers. — Correct. Buyers know the market price and get the same good elsewhere.
NCERT (2026-27): “4.1 Perfect Competition: Defining Features … Homogenous products further mean that the product of each firm is identical. So a buyer can choose to buy from any firm in the market, and she gets the same product. Free entry and exit mean that it is easy for firms to enter the market, as well as to leave it. This condition is essential for the large numbers of firms to exist. If entry was difficult, or restricted, then the number of firms in the market could be small. …” “4.1 Perfect Competition: Defining Features … Observe that since all firms produce the same good and all buyers are aware of the market price, the firm in question loses all its buyers. Furthermore, as these buyers switch their purchases to other firms, no “adjustment” problems arise; their demand is readily accommodated when there are so many other firms in the market.” |