Why does a perfectly competitive market require many participants as both buyers and sellers?

• A. To allow firms to collude and set prices above equilibrium.
• B. To guarantee that all products are differentiated.
• C. To ensure that no single buyer or seller can influence the market price.
• D. To make it easier for the government to regulate the market.

Answer: (C)

Verified step by step guidance

1. Understand the definition of a perfectly competitive market: it is a market structure characterized by many buyers and sellers, homogeneous products, free entry and exit, and perfect information.
2. Recognize that having many participants (both buyers and sellers) ensures that no single participant has enough market power to influence the price of the product.
3. Recall that in perfect competition, the price is determined by the overall market supply and demand, making each firm a 'price taker' rather than a 'price maker'.
4. Note that if there were only a few sellers or buyers, they could potentially influence the price by colluding or exercising market power, which contradicts the assumptions of perfect competition.
5. Therefore, the presence of many buyers and sellers is essential to maintain the competitive equilibrium where prices reflect true market conditions without manipulation.