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प्रश्न
Write short notes on Price determination under perfect competition.
How is market price determined under conditions of perfect competition?
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उत्तर
Under perfect competition, the market price, or the equilibrium price, is determined in the industry. Individual firms have no influence on this price. In the industry, the price is determined by the intersection of the market supply and market demand curves. In other words, the price under perfect competition is set at the point where the market supply of the good is equal to the market demand for the good. The individual firms take the determined market price as fixed and adjust their supply accordingly.
In the figure, part A depicts the infinitely elastic demand curve faced by an individual firm in a perfect competition market. Part B depicts how the market demand and market supply curves interact to determine the market price. The market price OP is determined by the intersection of the market (industry) demand curve DD and market (industry) supply curve SS. The market equilibrium is at point E, where OQx (amount of output) is supplied at the market price OP. An individual firm receives the price for the commodity, and no single firm can influence the market price. The firm faces an infinitely elastic demand curve, which suggests that no matter how many units of output are supplied, the price will remain the same. Hence, we can conclude that under a perfect competition market, an individual firm is a price taker and not a price maker.
