Which of the following is a characteristic of a competitive market?

• A. Products are highly differentiated
• B. Barriers to entry are high
• C. Many buyers and sellers, each unable to influence the market price
• D. Firms can set prices above the market equilibrium

Answer: (C)

Verified step by step guidance

1. Understand the definition of a competitive market: It is a market structure characterized by many buyers and sellers, where no single participant can influence the market price.
2. Identify the key features of a competitive market: These include homogeneous (not highly differentiated) products, free entry and exit (low barriers to entry), and price-taking behavior by firms.
3. Analyze each option given in the problem: - 'Products are highly differentiated' contradicts the characteristic of homogeneous products in competitive markets. - 'Barriers to entry are high' contradicts the free entry and exit condition. - 'Many buyers and sellers, each unable to influence the market price' aligns with the definition of a competitive market. - 'Firms can set prices above the market equilibrium' contradicts the price-taking nature of firms in competitive markets.
4. Conclude that the correct characteristic of a competitive market is the presence of many buyers and sellers, each unable to influence the market price.
5. Remember that in competitive markets, firms are price takers, meaning they accept the market price as given and cannot set prices above equilibrium.