Question

Classify each market characteristic as being a trait of competitive markets, monopolistically competitive markets, or both market structures. Competitive Markets Monopolistically Competitive Markets Both Market Structures Answer Bank Differentiated goods Few, if any, barriers to entry No one buyer or seller can control prices Many buyers and sellers Identical/homogenous goods

Answer 1

Q 1)

1. Differentiated goods is a feature of monopolistic competition. Differentiation implies that rival firms are selling products which are not perfect substitutes but close substitutes of each other.

2. Few, if any, barriers to entry is a feature of monopolistic competition. Firms are free to enter the industry or leave it. However, new firms have no absolute freedom of entry as the products of some of the firms may be legally patented.

3. No one buyer or seller can control the prices is a feature of competitive markets. The number of buyers and sellers is so large that no individual buyer or seller can influence the market demand or market market supply. Since, market demand and market supply are unaffected, market price also remains constant or unaffected for an individual firm or buyer in the market.

4. Many buyers and sellers is a feature of both the perfect competition and monopolistic competition. There is a large number of buyers and sellers who have a limited share in the market.

5. Identical or homogeneous goods is a feature of perfect competition. It is a situation of no product differentiation as the buyers find products of different firms as perfect substitutes of each other.