Question

There are many distinct characteristics that classify a market as Perfectly Competitive including: Very large number of firms Homogenous products Entry and exit into the market free of barriers Perfect Information Individual firms are price takers Long run economic profits will be zero Instructions Given these characteristics of a perfectly competitive market, select one of the characteristics listed. In your post: Fully explain what that characteristic means and what its importance is to classifying a market as perfectly competitive. If you have noticed this characteristic in a certain market, explain where you have seen it before or provide your own example. Would you see the characteristic you are discussing in any of the other three market structures - monopolistic competition, oligopoly or monopoly

Answer 1

Answer:

Characteristics of a Perfectly Competitive Market

One of the characteristics is the presence of many firms:

In a perfectly competitive market or industry, there is a large number of small firms producing homogeneous, identical, and unbranded products.  As they are small in comparison to the overall market size, no single firm is able to exert market control over the price or quantity at which the firms sell to the buyers.  In such a market, all the characteristics of a perfectly competitive market are present.  Buyers and sellers have perfect knowledge of the product, prices, quantity, information, and technology.  Under this scenario, if one firm doubles its production or stops production entirely in order to influence the market indexes, the market remains unaffected.  With this, the price remains constant.  There is no scarcity or surplus. The demand curve is always in equilibrium.  There is no elasticity of price, since there is no change in the price of the product. Unfortunately, there is no market that is perfectly competitive.  It is only an ideal situation.  A close resemblance to this market is in the market for salt, because of the relatively cheap prices of salt.   But, many firms have branded their products so differently that consumers make choices, but firms have not been able to influence the market.  Unfortunately, this characteristic of perfectly competitive market is not present in the other three markets: monopolistic competition, oligopoly, or monopoly given their own basic characteristics.

Explanation:

A perfectly competitive market or industry has large number of small firms, with no exit or entry barriers.  There is perfect knowledge of the market so that buyers and sellers have equal access to information.  The goods in such a market is so identical that firms do not brand their goods to look different from others.  As earlier mentioned, this type of market exists in the ideal world.  Other market types are monopolistic competition, oligopoly, and monopoly.  There are practical examples of the existence of such markets in the world.