Question

Statement (1): Perfect competition is a hypothetical market situation.

Statement (2): Under perfect competition, the government decides the prices of the products and services.

Options

• Statement 1 is true and Statement 2 is false.

• Statement 2 is true and Statement 1 is false.

• Both the statements are true.

• Both the statements are false.

Answer 1

Statement 1 is true and Statement 2 is false.

Explanation:

• Statement (1): Perfect competition is regarded as a theoretical or hypothetical market situation because its stringent conditions such as absolute product homogeneity, complete knowledge, and hundreds of identical sellers are rarely found in the real world.
• Statement (2): Under perfect competition, the government does not establish or decide market prices; rather, prices are decided solely by market forces such as aggregate demand and supply, forcing individual firms to act as price takers.