Multiple Choice
Which of the following is NOT considered a pressure to hold large inventories in competitive markets?
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3. The Market Forces of Supply and Demand
Competitive Markets
Multiple Choice
Max owns a thrift store where he sells second-hand clothing. Which of the following is true about his participation in a competitive market?
A
Max is a price taker and cannot influence the market price of second-hand clothing.
B
Max can set any price he wants because there are no other sellers in the market.
C
Max faces a downward-sloping demand curve for his products.
D
Max can increase his profits by restricting the quantity of clothing he sells.
Verified step by step guidance1
Step 1: Understand the characteristics of a competitive market. In a perfectly competitive market, there are many sellers offering identical or very similar products, and no single seller can influence the market price.
Step 2: Recognize that in such a market, each seller is a price taker, meaning they must accept the market price as given and cannot set their own price above it without losing all customers.
Step 3: Recall that the demand curve faced by an individual seller in a competitive market is perfectly elastic (horizontal) at the market price, not downward-sloping, because buyers can easily switch to other sellers.
Step 4: Understand that restricting quantity to increase profits is not effective in a competitive market because the seller cannot influence the market price; any reduction in quantity sold simply reduces revenue without raising price.
Step 5: Conclude that the correct statement is that Max is a price taker and cannot influence the market price of second-hand clothing, consistent with the nature of competitive markets.
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