Question

Looking around your city, what businesses do you think come closest to the model of a perfectly competitive market? Explain why this is the case using correct economic terms and concepts.

Answer 1

Agricultural products like rice, wheat, vegetables, fruits are the closest to perfect competition. The market for agricultural products fulfil the conditions for a perfect competition.

The characteristics of a perfectly competitive market are: 1. A large number of buyers and sellers 2. An identical or a homogeneous product 3. The producers are price takers and have no control over the market supply and price 4. No buyers’ preferences as the products are identical.5. Perfect knowledge of the buyers over the price of the goods 6. Perfect mobility of factors of production like labor and capital 7. Free entry and exit of firms. There are no barriers to entry and exit.