Question

1. Provide an example of a perfectly competitive market, or at least a market that gets a close as possible in your opinion. Evaluate your market against the four characteristics of perfect competition (Many small buyers and sellers, identical products, complete information, free entry and exit) to explain why you think it fits this market structure. In your opinion, have the sellers in this market accepted their position as price-takers or do they continue to try to shift the market to monopolistic competition? If they try to shift the market, such as by attempting to differentiate or impose barriers to entry, what are some methods they use to do so in that specific market? You may not use an example from the video, including machine shops, agriculture and the stock market.

Answer 1

A perfectly competitive market is a market is a market form where the firms sell completely identical goods and hence the prices remain the same for all the firms. This can be explained with an example as apples. Few features can be seen llas:

1. )Identical goods: all the sellers are selling the same quality of apples, there is no product variation.

2.) Price takers : the firms are bound to sell their goods at the same price as the others, beacuse a higher price will make the firm loose its customers as the other firms have the same good being sold at lower prices.

3.) No profit maximization: if the firm increases the prices then the customers will go and hence there would be less sales which will automatically bring its earning low.

4.) Free entry and exit policy: there are no restrictions for entry as in monopoly nor any exit rules. A firm can easily enter and exit.

The firms have to accept their position as price takers because apples cannot add up to any feature and be charged with higher price. Hence if the price is increased then the firm will enter into losses.