What happens as a market approaches perfect competition?

As a market approaches perfect competition, resource allocation becomes more efficient due to several factors inherent in perfect competition. In this ideal market structure, there are numerous buyers and sellers, none of whom can significantly influence the market price on their own. This abundance of competition ensures that resources are directed toward their most productive uses, as businesses are incentivized to minimize costs and maximize output in order to maintain their market share.

In a perfectly competitive market, the forces of supply and demand dictate prices, leading to an equilibrium where the quantity supplied equals the quantity demanded. This dynamic fosters an environment where inefficient producers are driven out of the market, allowing only the most efficient firms to thrive. Consequently, resources are allocated in a manner that reflects consumer preferences and production efficiency, contributing to overall economic welfare.

The other options suggest scenarios that are contrary to this principle of efficiency found in perfect competition. Resource allocation becoming less efficient implies a misallocation of resources, which contradicts the nature of perfect competition. Fixed prices by businesses would undermine the fundamental characteristics of a competitive market, where prices are determined by market forces rather than by individual firms. Lastly, the formation of more cartels signifies a departure from the competitive nature, as cartels attempt to control prices and output, rather than allowing