Association of Chartered Certified Accountants (ACCA) Certification Practice Test

Which of the following best describes the knowledge level among consumers in a perfectly competitive market?

1. Partial knowledge

2. No knowledge

3. Complete knowledge

4. Vague knowledge

The correct answer is: Complete knowledge

In a perfectly competitive market, consumers possess complete knowledge about the products and services available to them. This means they have full information regarding prices, quality, and availability of goods and services from all sellers within the market. This transparency enables consumers to make informed decisions, ensuring that they can easily compare offerings and choose the best option available at the lowest price. The assumption of complete knowledge is crucial in the theory of perfect competition, as it leads to efficient market outcomes. When consumers are fully informed, it fosters a competitive environment where sellers cannot charge more than the market price without losing customers, leading to optimal allocation of resources. This characteristic ensures that no single consumer or producer can influence the market price, resulting in an equilibrium where supply and demand are perfectly balanced. Hence, the knowledge level among consumers in a perfectly competitive market is accurately described as complete knowledge.