A market, in which there are a large number of firms, homogeneous product, infinite elasticity of demand for an individual firm and no control over price by firms, is termed as________.
Perfect competition
Understanding Different Market Structures
Market structures describe the competitive landscape in which firms operate. These structures are defined by several key characteristics, such as the number of firms, the type of product sold, the ease of entry and exit, and the degree of control firms have over the price of their product.
The question asks us to identify a specific type of market based on four defining features:
- A large number of firms
- Homogeneous product (identical products)
- Infinite elasticity of demand for an individual firm
- No control over price by firms (firms are price takers)
Analyzing the Characteristics
Let's examine each characteristic provided in the question and see how it applies to common market structures like Oligopoly, Imperfect competition, Monopolistic competition, and Perfect competition.
Characteristic 1: Large Number of Firms
Both Monopolistic Competition and Perfect Competition are characterized by a large number of firms. Oligopoly, on the other hand, involves only a few large firms dominating the market.
Characteristic 2: Homogeneous Product
A homogeneous product means that the products offered by different firms in the market are identical and indistinguishable from one another (e.g., basic agricultural products like wheat or corn). This is a defining feature of Perfect Competition. In Monopolistic Competition, products are differentiated (even if slightly). In Oligopoly, products can be homogeneous (like some raw materials) or differentiated (like automobiles or soft drinks), but the "homogeneous product" condition is specifically tied to the pure oligopoly model, not the general case.
Characteristic 3: Infinite Elasticity of Demand for an Individual Firm
Infinite elasticity of demand means that the demand curve for an individual firm is perfectly horizontal. This implies that the firm can sell any quantity at the prevailing market price, but if it tries to raise its price even slightly, it will lose all its customers. This occurs when a firm is a "price taker," having no power to influence the market price. This is a hallmark of Perfect Competition.
In other market structures (Monopolistic Competition, Oligopoly, Monopoly), firms have some degree of market power, and their individual demand curves are downward sloping, meaning their demand is not infinitely elastic.
Characteristic 4: No Control Over Price by Firms
This characteristic directly follows from the infinite elasticity of demand. If a firm faces a perfectly elastic demand curve, it must accept the market-determined price. It cannot set its own price above the market level without losing all sales. This "price taker" behavior is exclusive to firms operating in a Perfect Competition market.
In Monopolistic Competition, Oligopoly, and Monopoly, firms are "price makers" or have some degree of control over pricing, facing a downward-sloping demand curve.
Comparing Market Structures to the Described Market
- Oligopoly: Does not fit the "large number of firms" or "infinite elasticity of demand/no price control" characteristics.
- Imperfect Competition: This is a broad category encompassing Monopolistic Competition, Oligopoly, and Monopoly. While it includes market structures with some degree of price control, the specific characteristics given point to a market structure *within* imperfect competition (Monopolistic Competition) or distinct from it (Perfect Competition). The given characteristics (homogeneous product, infinite elasticity, no price control) rule out typical forms of imperfect competition which feature product differentiation and price control.
- Monopolistic Competition: Fits "large number of firms" but does not fit "homogeneous product" or "infinite elasticity of demand/no price control".
- Perfect Competition: Fits "large number of firms," "homogeneous product," "infinite elasticity of demand for an individual firm," and "no control over price by firms."
Conclusion: Identifying the Market Structure
Based on the analysis of the defining characteristics – large number of firms, homogeneous product, infinite elasticity of demand for an individual firm, and no control over price by firms – the only market structure that perfectly matches all these conditions is Perfect Competition.
Comparing Key Market Structure Features
| Feature | Perfect Competition | Monopolistic Competition | Oligopoly | Monopoly |
|---|---|---|---|---|
| Number of Firms | Very Large | Large | Few | One |
| Product Type | Homogeneous (Identical) | Differentiated | Homogeneous or Differentiated | Unique |
| Control over Price | None (Price Taker) | Some | Significant | Complete |
| Demand Elasticity for Individual Firm | Infinite (Perfectly Elastic) | Highly Elastic (but not infinite) | Less Elastic than Monopolistic Comp. | Relatively Inelastic (Market Demand) |
| Barriers to Entry/Exit | Very Low/None | Low | High | Very High |
Revision Table: Characteristics of Perfect Competition
| Characteristic | Description | Implication for Firms |
|---|---|---|
| Large Number of Buyers and Sellers | No single buyer or seller can influence the market price. | Firms are small relative to the market size. |
| Homogeneous Product | Products are identical across all firms. | Consumers see products as perfect substitutes. |
| Free Entry and Exit | Firms can easily enter or leave the market in the long run. | Profits are driven to zero in the long run. |
| Perfect Information | Buyers and sellers have complete information about prices and product quality. | No information asymmetry. |
| Mobility of Factors of Production | Resources can move freely between industries. | Supports free entry and exit. |
Additional Information: Related Concepts in Perfect Competition
Understanding Perfect Competition also involves understanding concepts like price takers, where individual firms have no market power and must accept the equilibrium price determined by market demand and supply. The perfectly elastic demand curve faced by an individual firm is a direct result of the homogeneous product and the large number of firms, meaning consumers can easily switch to another firm if one firm raises its price.
While Perfect Competition is often considered a theoretical benchmark, some markets like agricultural markets or foreign exchange markets approximate some of its characteristics.
Similar Questions
Which one of the following is an example of a price floor?
Which one of the following statements is not correct?
Which one of the following is not an assumption in the law of demand?
In economics, if a diagram has a line passing through the origin and has a 45° angle with either axis and it is asserted that along the line, X = Y, what is tacitly assumed?
Suppose an agricultural labourer earns Rs. 400 per day in her village. She gets a job to work as babysitter in a nearby town @ Rs. 700 per day. She chose to work as agricultural labourer. Which one of the following is the opportunity cost of the agricultural labourer?
The value of the slope of a normal demand curve is ________.
Which one of the following is the opportunity cost of a chosen activity?
Which one of the following may lead to a movement along the demand curve of a commodity?
Which one of the following does not influence quantity demanded for a good?
Which of the following factors signify monopolistic competition?
1. Differentiated products
2. Large number of buyers and sellers
3. Barriers to entry
4. Homogeneous products
Select the correct answer using the code given below:
Important Questions from Microeconomics
Which of the following statement is correct?
I. Indifference curves are sloping from left to right.
II. Higher indifference curve gives a higher level of utility.
If in a production process, all inputs are tripled, which of the following statements follows?
I. If the output is tripled, then decreasing returns to scale apply.
II. When the output is doubled, constant returns to scale apply.
III. If the output is more than tripled, then increasing returns to scale apply.
If the two goods are substituted, then the indifference curve will be:
Arrange the following market structures in the increasing order of pricing power to firms.
(A) Monopolistic competition
(B) Perfect competition
(C) Duopoly
(D) Monopoly
(E) Oligopoly
Choose the correct answer from the options given below:
The government multiplier is given by (where c = MPC and t = tax rate)
