Define a perfectly competitive market, and explain why a perfect competitor faces a horizontal demand curve.
A perfectly competitive market has many buyers and sellers, all firms sell identical products and there are no barriers to new firms entering the market.
A perfectly competitive firm faces a horizontal demand curve because if the firm tried to raise its price, consumers would buy from the firm’s competitors.
Since the firm can sell all the output it wants at the current market price there would be no point to trying to charge a lower price.
If a firm increases the output it sells, the price will not decrease because each firm is too small to shift the market supply curve enough to lower equilibrium price.