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#75 | PRICE DETERMINATION UNDER PERFECT COMPETITION | MARKET EQUILIBRIUM Video Lecture - Commerce

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1. What is perfect competition and how does it affect price determination?

Ans. Perfect competition is a market structure where numerous buyers and sellers exist, selling homogeneous products with no barriers to entry or exit. In this type of market, prices are determined solely by the forces of supply and demand. The equilibrium price is reached when the quantity supplied equals the quantity demanded, ensuring that no individual buyer or seller has the power to influence the market price.

2. How is market equilibrium achieved under perfect competition?

Ans. Market equilibrium is achieved in perfect competition when the quantity demanded equals the quantity supplied. At this point, there is no shortage or surplus in the market, and the price remains stable. In the long run, market forces adjust to reach equilibrium by attracting or repelling new firms based on the profitability of the industry. This process continues until firms earn normal profits and the market reaches a state of equilibrium.

3. What factors affect price determination in perfect competition?

Ans. Price determination in perfect competition is influenced by several factors. The main factors include the level of demand and supply, production costs, market competition, and consumer preferences. When demand increases or supply decreases, prices tend to rise. Conversely, when demand decreases or supply increases, prices tend to fall. Additionally, changes in production costs, such as raw material prices or labor wages, can also impact price determination.

4. Can individual firms in perfect competition influence market prices?

Ans. No, individual firms in perfect competition cannot influence market prices. In a perfectly competitive market, each firm is a price taker. This means that firms have no control over the market price and must accept it as given. Since there are numerous buyers and sellers, no single firm has enough market share to manipulate prices. Instead, firms adjust their production levels based on the prevailing market price in order to maximize their profits.

5. How does perfect competition benefit consumers?

Ans. Perfect competition benefits consumers in several ways. First, it ensures that consumers have access to a wide variety of products at competitive prices. The presence of multiple firms in the market encourages innovation and product differentiation, leading to better choices for consumers. Additionally, in a perfectly competitive market, firms are compelled to offer high-quality products and efficient customer service to attract and retain customers. This focus on consumer satisfaction ultimately benefits consumers by providing them with better value for their money.

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	Nov 16, 2024 Last updated

#75 | PRICE DETERMINATION UNDER PERFECT COMPETITION | MARKET EQUILIBRIUM for Commerce2024 is part of Commerce preparation. The notes and questions for #75 | PRICE DETERMINATION UNDER PERFECT COMPETITION | MARKET EQUILIBRIUM have been prepared according to the Commerce exam syllabus. Information about #75 | PRICE DETERMINATION UNDER PERFECT COMPETITION | MARKET EQUILIBRIUM covers all important topics for Commerce2024 Exam. Find important definitions, questions, notes, meanings, examples, exercises and tests below for #75 | PRICE DETERMINATION UNDER PERFECT COMPETITION | MARKET EQUILIBRIUM.

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