Both buyers and sellers are price takers in a perfectly competitive market because:

• A. products are highly differentiated.
• B. each participant is too small to influence the market price.
• C. firms can set prices above marginal cost.
• D. there are significant barriers to entry and exit.

Answer: (B)

Verified step by step guidance

1. Understand the concept of a perfectly competitive market: it is characterized by many buyers and sellers, homogeneous products, free entry and exit, and perfect information.
2. Recall that in such a market, individual buyers and sellers are 'price takers,' meaning they accept the market price as given and cannot influence it.
3. Analyze why participants cannot influence the market price: because each buyer or seller is very small relative to the entire market, their individual actions do not affect the overall supply or demand.
4. Evaluate the incorrect options: 'products are highly differentiated' is false because products are homogeneous in perfect competition; 'firms can set prices above marginal cost' is false because firms are price takers and price equals marginal cost in equilibrium; 'significant barriers to entry and exit' is false because perfect competition assumes free entry and exit.
5. Conclude that the correct reason is that each participant is too small to influence the market price, which is why both buyers and sellers are price takers.