Question

Explain the implications of the following : Perfect knowledge in perfect competition.

Answer 1

Perfect knowledge in perfect competition:-

Buyers and sellers are completely aware of the existing price in the market. As they deal with homogenous products, they will not be able to charge different prices from different buyers. If the firms try to charge higher price for their products, then the sellers will immediately shift to different firms selling at lower prices. Hence, firms cannot change their price and take the price determined by the industry. They are only price takers but not price makers.