Given below are two statements:
Statement I: When there is a lesser degree of competition in the market, the price of a product tends to settle at the lowest level.
Statement II: Competitors’ prices and their anticipated reactions must be considered before fixing the price of a product.
In the light of the above statements, choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Statement I is incorrect but Statement II is correct.
Statement I: When there is a lesser degree of competition in the market, the price of a product tends to settle at the lowest level. — Incorrect. With less competition, the price tends to reach the upper limit, because buyers have few other sellers to turn to. The price settles at the lowest level only under free competition.
Statement II: Competitors’ prices and their anticipated reactions must be considered before fixing the price of a product. — Correct. A firm must look at what rivals charge and how they may react, along with the quality and features of their products, before it fixes its own price.
NCERT (2026-27 Edition): “3. Extent of Competition in the Market: Between the lower limit and the upper limit where would the price settle down? This is affected by the nature and the degree of competition. The price will tend to reach the upper limit in case there is lesser degree of competition while under conditions of free competition, the price will tend to be set at the lowest level Competitors’ prices and their anticipated reactions must be considered before fixing the price of a product. Not only the price but the quality and the features of the competitive products must be examined carefully, before fixing the price.” |