Which of the following characteristics of competitive markets is necessary for firms to be price takers? i) There are many sellers.
Ii) Firms can freely enter or exit the market.
Iii) Goods offered for sale are largely the same.

Question

Quizplus · Accepted Answer

For firms to be price takers, there should be many sellers in the market (i) as it ensures that no single firm can influence the market price. Additionally, goods offered for sale should be largely the same (iii) as this ensures that consumers perceive the goods as perfect substitutes, and hence, firms cannot charge a premium for their products. However, the ability of firms to enter or exit the market freely (ii) has no direct impact on firms being price takers, though it does affect the number of sellers in the market.

Which of the Following Characteristics of Competitive Markets Is Necessary