Price determination under perfect competition.

Ans.

(i) Market price is determined by the equilibrium between demand and supply in a market period or very short run. The market period is a period in which the maximum that can be supplied is limited by the existing stock. The market period is so short that more cannot be produced in response to increased demand. The firms can sell only what they have already produced.


(ii) This market period may be an hour, a day or a few days or even a few weeks depending upon the nature of the product. For example, in the case of perishable commodities like fish, this market period may be a day, and for cotton textile industry it may be a few weeks. What will be the nature of supply curve in a market period? Two cases are prominent—one is that of perishable goods and the other is that of non- perishable durable goods which are reproducible.