Question:
Which of the following is not usually a characteristic of a perfectly competitive market?
(1) No individual firm has any significant amount of market power.
(2) The market demand curve is perfectly elastic.
(3) Any individual firm can increase its production and sales without affecting the price of the good.
(4) The existing firms cannot bar the entry of new firms.
(5) There are large number of buyers and sellers in the market.
Correct Answer:
(2)
Answer Explanation:
In perfect competition, an individual firm faces a perfectly elastic (horizontal) demand curve because it is a price taker. However, the market demand curve for the entire industry still slopes downward, obeying the standard Law of Demand. Thus, statement 2 is false.
Topic: Market Structures Year: 2017
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