CIPS L4M5 Exam - Topic 14 Question 27 Discussion

Actual exam question for CIPS's L4M5 exam

Question #: 27
Topic #: 14

[All L4M5 Questions]

Which of the following are most likely to be characteristics of a perfectly competitive market? Select TWO that apply

AIn a competitive market, both buyers and sellers are price givers

BFirms can freely enter or exit the market

CIn a perfectly competitive market, each seller has a large impact on the market price
A perfectly competitive market consists of products that are all slightly different from one another

DThere are many buyers and sellers in the market

Show Suggested Answer

Suggested Answer: B, D

A perfectly competitive market is one with the following features:

- There are many firms producing identical or very similar (homogeneous) goods or services

- There are no barriers to entry to the market or exit from the market - anyone can enter or leave easily

- Both producers and customers have perfect knowledge of the market place, prices, costs of production and influences on demand and supply

Under these conditions, the price and quantity will always tend toward equilibrium as any producer that sets a price above equilibrium will not sell anything at all, and any producer that sets a price below a equilibrium will obtain 100% market share in theory. The demand curve is perfectly elastic, which means that it will be horizontal. In a perfectly competitive market, it is difficult to increase profits through pricing, and suppliers instead must focus on their cost structure. As these conditions imply, there are few if any examples of perfectly competitive market.

LO 2, AC 2.2

by Selma at Jul 21, 2022, 09:09 PM

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Chaya

4 months ago

Surprised that people think sellers impact prices in perfect competition!

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Isaac

4 months ago

A and C don't sound right to me, especially C.

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Helene

4 months ago

Wait, isn't it the opposite? Sellers are price takers, not givers.

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Cordelia

4 months ago

Totally agree, there are many buyers and sellers too!

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Francis

4 months ago

Firms can freely enter or exit the market is definitely true!

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Onita

5 months ago

I feel like option C is wrong because I recall that products in a perfectly competitive market are identical, not slightly different.

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Ashleigh

5 months ago

I remember a practice question that mentioned many buyers and sellers being a characteristic, so I think option D is likely right too.

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Stephanie

5 months ago

I'm not sure about option A; I thought that in perfect competition, sellers are price takers, not givers.

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Glenna

5 months ago

I think option B is definitely correct since firms can enter or exit freely in a perfectly competitive market.

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Mabel

5 months ago

I'm a little confused on the differences between the different types of partnerships. Is a joint venture the same as a limited partnership? I'll have to review my notes to make sure I have this right.

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Alease

5 months ago

I'm a bit confused by the wording of the question. Is it asking for the specific error message to be used, or just the general type of error message? I'll need to re-read the options carefully.

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Novella

5 months ago

This is a straightforward question about cloud security responsibilities. I'm pretty confident the answer is C - both the cloud provider and the cloud user are responsible for securing user data.

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