Economics Perfect Competition Questions
The characteristics of a perfectly competitive market are as follows:
1. Large number of buyers and sellers: There are numerous buyers and sellers in the market, none of whom have the ability to influence the market price.
2. Homogeneous products: The goods or services being sold in the market are identical or very similar, with no differentiation between them.
3. Perfect information: Buyers and sellers have complete knowledge about the market conditions, including prices, quality, and availability of goods or services.
4. Free entry and exit: There are no barriers to entry or exit in the market, allowing new firms to enter and existing firms to exit without any restrictions.
5. Price takers: Both buyers and sellers are price takers, meaning they have no control over the market price and must accept it as given.
6. Perfect mobility of resources: Resources, such as labor and capital, can easily move in and out of different industries or firms without any hindrance.
7. Profit maximization: Firms in a perfectly competitive market aim to maximize their profits by producing at the level where marginal cost equals marginal revenue.
8. Absence of market power: No individual buyer or seller has the ability to influence the market price or manipulate market conditions.
These characteristics collectively create a market structure where competition is intense, leading to efficient allocation of resources and the absence of monopoly power.