Which of the following arguments could be made as evidence that the market for produce sold at a farmers' market is perfectly competitive?
A) The U.S. Department of Agriculture has established standards for the labeling of organic produce sold at farmers' markets.
B) Sales of organically grown food have increased at a rate of 20 percent per year.
C) As more farmers began selling their products at farmers' markets, the increase in supply has driven down prices to the point where they just cover the cost of production.
D) The profits earned by farmers who sell their products at farmers' markets have continued to grow, despite the increasing number of farmers entering this market.

Question

Quizplus · Accepted Answer

If the increase in supply has driven down prices to the point where they just cover the cost of production, it suggests that the market is highly competitive and no one seller is able to charge a price above the equilibrium level. The other options do not necessarily indicate perfect competition. The USDA standards (A) may indicate that there is a level of product differentiation, and the increasing sales of organic food (B) may suggest that there is demand for such products. The profits earned by farmers (D) could result from a number of factors besides market competition, such as increased demand, lower input costs, or improvements in production or distribution efficiency.

Which of the Following Arguments Could Be Made as Evidence