Which of the following is not characteristic of pure competition?
a. price strategies by firms
b. a standardized product
c. no barriers to entry
d. a larger number of sellers
The correct answer and explanation is :
The correct answer is a. price strategies by firms.
Explanation:
Pure competition is a market structure characterized by several specific features. Let’s break down the options and explain why “price strategies by firms” does not align with pure competition:
- A standardized product (b):
In pure competition, all firms sell an identical or standardized product. This means that there is no differentiation between the products offered by different firms. For example, in the agricultural sector, products like wheat or corn are essentially the same no matter which firm is selling them. Standardization ensures that consumers can switch from one seller to another without any difference in product quality. - No barriers to entry (c):
In a purely competitive market, there are no significant barriers to entry or exit. This means that new firms can freely enter the market if they see an opportunity for profit, and they can also exit the market without facing high costs. This characteristic ensures that firms in the market face competition, and no single firm can dominate the market for long. - A larger number of sellers (d):
Pure competition is defined by the presence of a large number of sellers in the market. The large number of firms ensures that no single firm has the market power to influence the price of the product. All firms are “price takers,” meaning they must accept the prevailing market price, which is determined by overall supply and demand. - Price strategies by firms (a):
In pure competition, firms do not have the ability to set or influence prices. Instead, prices are determined by the forces of supply and demand in the market. Since the products are standardized, and there are many sellers, individual firms cannot engage in price strategies like price discrimination or price-setting. If a firm tries to charge a price above the market equilibrium, consumers will simply buy from other firms, forcing the price back down to the market level. Therefore, price strategies by firms are not a characteristic of pure competition.
In summary, pure competition is marked by a standardized product, no barriers to entry, a large number of sellers, and firms being price takers without the ability to set prices.