Question

a. What are the important characteristics of perfectly competitive markets?

b. Give me 5 examples of perfectly competitive markets.

Answer 1

The perfectly competitive firm have the following characteristics-

-They are price takers

-They produce the good which is a perfect substitute

-They make zero economic profits in the long run

-The consumers have perfect information about the market

-there is freedom of entry and exit of firms

The perfectly competitive firm is a price taker as it cannot charge its own price. The firm produces a good which is a perfect substitute so if the seller increases the price, the consumer will buy the good from another seller as they have perfect information. In the long run, the firms earn zero profits as price = average total cost in the long run.

Examples of perfectly competitive markets-

-agriculture market

-foreign exchange market

-Internet

-Food

-Market for unskilled labor