Question

Discuss how under perfect competition, the industry is a ‘price-maker’.

Answer 1

In a perfectly competitive market, the industry is a ‘price-maker’ because the market price is determined by the interaction of total market demand and total market supply, which results from the collective actions of all firms and buyers in the industry. While individual firms have no control over price, the combined output decisions of all firms affect the total supply, and changes in this supply can influence the equilibrium price. Thus, the industry as a whole sets the price through the natural forces of demand and supply, and once determined, this price is accepted by all individual firms, making the industry the effective price-maker.