Question

What are the four assumptions of the perfectly competitive model? Critics are fond of pointing out that few, if any, real-world markets satisfy all four conditions, implying that the competitive model has little relevance for real -world markets. How would you respond to them?

Answer 1

Assumptions of perfectly competitive model:

1. Homogeneous product: the sellers sells identical products

2. There are lare number of buyers and sellers.

3. There are no barriers to entry or exit from the industry.

4. Both buyers and sellers have perfect knowledge of the product and the market conditions.

Critics rightly point out that the perfectly competitive model has little relevance for real world markets. In the real world, perfect competition hardly exists.