Answer to Question #91685 in Microeconomics for John Manda

Question

Discuss the characteristics of a Competitive Market

Answer 1

Many buyers and many sellers characterize a competitive market. That would mean that many economic agents are acting independently. The presence of too many agents makes them too small to have an impact on market prices.

A competitive market lacks artificial restraints. This means that the forces of demand and supply work independently to determine the equilibrium price and quantity. Thus, price floors and price ceilings do not exist.

Free entry and exit. Geographical or business constraints are nonexistent. Thus, businesses are not constrained to enter or exit the market. Movement of resources is not constrained.

Perfect information. This characteristic is associated with the fact that consumers are aware of the goods sold, their prices, and where they are marketed.

A competitive market has Standardized products. This would mean that goods are identical. A consumer considers the products as perfect substitutes. Hence firms do not attempt to differentiate their products or engage in price discrimination.