Multiple Choice
In a competitive market, who are the two main participants involved in the exchange of goods and services?
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3. The Market Forces of Supply and Demand
Competitive Markets
Multiple Choice
Which of the following statements is correct regarding different types of markets?
A
In a perfectly competitive market, firms are price takers and cannot influence the market price.
B
In an oligopoly, firms always act independently and never consider the actions of their rivals.
C
In a monopoly, there are many firms competing and each has no control over price.
D
In monopolistic competition, firms sell identical products with no differentiation.
Verified step by step guidance1
Step 1: Understand the characteristics of a perfectly competitive market. In this market structure, there are many firms selling identical products, and each firm is a price taker, meaning it cannot influence the market price because the product is homogeneous and there are many sellers.
Step 2: Analyze the nature of an oligopoly. In an oligopoly, a few firms dominate the market, and their decisions are interdependent. Firms often consider the actions and reactions of their rivals when making pricing and output decisions, so the statement that they always act independently is incorrect.
Step 3: Examine the features of a monopoly. A monopoly consists of a single firm that is the sole seller of a product with no close substitutes. This firm has significant control over the price, so the statement that there are many firms competing and no control over price is false.
Step 4: Review monopolistic competition. In this market structure, many firms sell products that are differentiated (not identical), which gives each firm some control over its price. Therefore, the claim that firms sell identical products with no differentiation is incorrect.
Step 5: Summarize the correct statement: In a perfectly competitive market, firms are price takers and cannot influence the market price. This aligns with the fundamental definition of perfect competition.
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