Short Answer 
A perfectly competitive market involves many firms offering identical goods, leading to no price control by any single producer. Prices are determined by supply and demand, and the market allows for free entry and exit of firms, ensuring sustained competition and fair pricing.
Step 1: Understand Market Structure
In a market characterized by perfect competition, numerous firms produce identical goods and compete against one another. This scenario ensures that no single producer can dominate prices, allowing for a truly competitive environment. It’s crucial to note the concept of many producers playing a role in shaping market dynamics.
Step 2: Recognize Price Determination
The prices of goods in perfect competition are dictated entirely by supply and demand. Since each firm holds only a small market share, they cannot set their prices independently. Instead, they accept the prevailing market price, which is influenced by the overall balance of buyers and sellers in the market.
Step 3: Identify Entry and Exit Conditions
A vital feature of perfect competition is the free entry and exit of firms in the market. This means that new producers can easily enter the market without facing high barriers, while existing firms can exit if they choose to. This fluidity helps maintain competition and keeps prices fair for consumers.