Final answer:
A horizontal demand curve where a retailer must sell at the market price indicates a perfectly competitive market. Here, firms face a perfectly elastic demand curve, selling any quantity at the fixed market price without influencing it.
Step-by-step explanation:
In economics, specifically general equilibrium theory, a perfect market, also known as an atomistic market, is defined by several idealizing conditions, collectively called perfect competition, or atomistic competition. In theoretical models where conditions of perfect competition hold, it has been demonstrated that a market will reach an equilibrium in which the quantity supplied for every product or service, including labor, equals the quantity demanded at the current price. This equilibrium would be a Pareto optimum.
In a perfectly competitive market, the demand curve a firm faces is perfectly elastic, indicating that the firm can sell any quantity of its product at the market-determined price without influencing the price itself. If a firm tries to charge more than the market price, its goods will not sell because buyers can obtain the same product from other sellers at the market price. Conversely, selling below the market price does not benefit the firm since it can sell all its goods at the market price.