The market price and output is determined on the basis of consumer demand and market supply under perfect competition. In other words, the firms and industry should be in equilibrium at a price level in which quantity demand is equal to the quantity supplied. Under perfect competition, the buyers and sellers cannot influence the market price by increasing or decreasing their purchases or output, respectively. This implies that in perfect competition, the market price of products is determined by taking into account two market forces, namely market demand and market supply. Price determination is the interaction of the broad forces of supply and demand which “determine” or cause the market price level. Price discovery is the process of buyers and sellers. Price is determined by the intersection of market demand and market supply; individual firms do not have any influence on the market price in perfect competition. Once the market price has been determined by market supply and demand forces, individual firms become price takers.

Payal Jain

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