What is a competitive market? Describe and give an example. 2. Does a change in consumer tastes cause a movement along the demand curve or a shift in the demand curve? Explain.
A competitive market is one where there are a large number of buyers and sellers, there are no barriers to entry and exit and all products are standardized. Under perfect competition there are no supernormal profits in the long run and also firms will enter and exit the market until the supernormal profits are competed away. There is no perfectly competitive market in reality. It does not exist.
A change in consumer tastes will mean that an exogenous factor changes and so this will cause a shift in the demand curve and so a increase or decrease in prices. This is an exogenous factor and so it causes a shift in the demand curve.
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