In a perfectly competitive market, each firm is a price taker . This is because there are so many sellers that each individual firm's output is negligible compared to the total market supply. Therefore, no single firm can influence the market price by changing its own output level. Why other options are incorrect:

often suggests that cost decreases when the value of the chosen option increases, which contradicts economic theory (cost is determined by the next best alternative). Feature: Mastering Opportunity Cost (HKCEE Style)

This condition exists because human wants are unlimited while resources are finite. It applies to both rich and poor societies.

HKCEE 2010 Econ Paper 2 Q2 tested students' understanding of externalities, market failure, and the role of government intervention in correcting market failure. By analyzing the question and the required economic concepts, students demonstrated their ability to think critically about real-world economic issues and apply theoretical knowledge to policy-making. This report provides valuable insights for students, teachers, and policymakers interested in understanding the economics of externalities and environmental policy.