Question

Describe the characteristics of a 'Perfectly Competitive Market'.

Hint:

In a perfectly competitive market, firms are price takers, meaning they accept the market price as given and cannot influence it.

Answer 1

A perfectly competitive market has the following key characteristics: 

• Large number of buyers and sellers: There are many buyers and sellers, each of whom is too small to influence the market price.
• Homogeneous products: The goods or services offered by different sellers are identical, meaning there is no differentiation.
• Free entry and exit: Firms can enter or exit the market without restrictions or costs.
• Perfect knowledge: All participants (buyers and sellers) have perfect knowledge about prices, technology, and other relevant factors.
• No government intervention: There is no government intervention in setting prices or output levels.