Name a market in which price of the product is determined by the industry?
Answer & explanation
Correct answer: option 1
The correct answer is Option 1: perfect competition
In a perfectly competitive market, the industry determines the price because:
1️⃣ Firms are price takers → Each individual firm must accept the market price set by market forces of demand and supply.
2️⃣ Large number of buyers and sellers → No single firm can influence the price.
3️⃣ Homogeneous products → Since all firms sell identical products, consumers have no reason to pay a higher price.
4️⃣ Free entry and exit → This ensures firms only earn normal profits in the long run, keeping prices stable.
Thus, in perfect competition, price is determined by the industry, and firms must sell at this price or not sell at all.