Characteristics of competitive markets The model of perfectly competitive market
ID: 1107593 • Letter: C
Question
Characteristics of competitive markets The model of perfectly competitive markets relies on these four core assumptions: 1. There must be numerous small firms and customers-each player's actions have no effect on price and, thus, trade associations and collusive agreements are not possible 2. Firms must produce a homogenous product-buyers must regard all sellers' products as equivalent. 3. Firms and resources must be fully mobile, allowing for free entry into and exit from the industry. 4. Each firm and each customer is well informed about available products and prices. Customers know whether one supplier is selling at a lower price than another. The first two conditions imply that all consumers and firms are price takers. While the third is not necessary for price-taking behavior, assume for this problem that a market cannot maintain competition in the long run without free entry Identify whether or not each of the following scenarios describes a perfectly competitive market, along with the correct explanation of why or why not. Scenario Several stores in the mall sell hooded sweatshirts. Each store's sweatshirts reflect the style of that particular store. Additionally, some stores use higher-quality cotton than others, which is reflected in the apparel's prices The government has granted the U.S. Postal Service the exclusive right to deliver mail There are dozens of pasta producers that sell pasta to hundreds of Italian restaurants Perfectly competitive?Explanation / Answer
Answer: No, not a homogenous product
No, No free entry (as postal service has exclusive rights)
No, not many sellers
no, not many sellers. Although here as the taxi drivers are price takers and homogenous product in the eyes of customer it resembles perfectly competitive market however as they don't capture the entire market not enough sellers for perfect competition.