Competitive Market Theory

Competitive Market Theory describes how supply and demand interact in a market with many buyers and sellers. In such a market, competition ensures that no single participant can dictate prices; instead, prices are set by the collective actions of everyone involved. When demand for a product increases, prices rise, encouraging more suppliers to enter the market. Conversely, if demand falls, prices drop, prompting some suppliers to exit. This dynamic helps allocate resources efficiently and encourages innovation, ultimately benefiting consumers through a variety of choices and fair pricing.