What characterizes perfect competition?

Perfect competition is characterized by numerous small firms operating in the market, each of which has no significant market power. This means that no single firm can influence the market price of a product; rather, the price is determined by the collective supply and demand within the industry. Because each firm sells a homogeneous product, consumers view the offerings of all firms as perfect substitutes. As a result, firms in a perfectly competitive market are price takers—they must accept the market price as given and can only compete by increasing efficiency or reducing costs.

The presence of many small firms ensures that the market remains competitive, minimizing the chances of collusion or monopolistic behavior. Additionally, barriers to entry and exit are low, allowing for free movement into and out of the market, which further promotes competition. These characteristics contribute to an efficient allocation of resources in the economy.

In contrast, the other options describe market structures with distinct characteristics. A single firm dominating the market describes a monopoly, where one entity controls the entire supply, leading to higher prices. A few large firms controlling supply indicates an oligopoly, where a small number of firms are able to influence market prices. Lastly, strict government control of prices suggests a regulated market, which does not align with the principles of perfect competition