Question

In a perfectly competitive market, how is the price of a commodity determined?

Options

• By each individual firm separately

• By negotiation between a firm and its buyers

• By the intersection of total market demand and total market supply

• By the government’s fixed support price

Answer 1

By the intersection of total market demand and total market supply

Explanation:

Under perfect competition, the industry (all buyers and sellers together) determines the price where total market demand equals total market supply; individual firms only accept this price and cannot change it.