Final answer:
In a perfectly competitive market, prices are determined by the supply and demand among all participants, with firms acting as price takers. No individual can influence prices, as any price adjustments above the equilibrium would lead to a loss of sales. Firms sell products at the market price and compete mainly through price and quality.
Step-by-step explanation:
In a perfectly competitive market, individuals do not directly influence the prices of goods and services; instead, the market price is determined by overall supply and demand in the market. The principle that defines such a market structure is that firms are considered price takers.
This means that if a firm were to increase its product's price above the market equilibrium, even by a small amount, it would lose all its sales to competitors as there are many sellers offering the same product. In essence, the collective actions of all individuals in the market – all the buyers and sellers together – affect the price, while no single individual can sway it.
A perfectly competitive firm faces a perfectly elastic demand curve and can sell any amount of products at the market price. The firm's revenue and costs, influenced by the output quantity it chooses to produce and the current market prices, will ultimately determine its profits.
Sellers in such markets strive to offer the best prices and quality to outbid their rivals, and buyers attempt to obtain the best deals, resulting in equilibrium prices that reflect the true value of goods and services based on their scarcity and desirability.