Question

Give an example in the marketplace that describes the principles of the free market (perfect competition) and competition. Please provide an in-depth explanation of your answer.

Answer 1

Vegetable market is an example of perfect competition.

Firstly, In perfect competition, there are a large number of buyers and sellers. In the vegetable market, there are a large number of farmers producing and selling vegetables and a large number of consumers buying those.

Secondly, In perfect competition, each firm sells an identical product. In the vegetable market, each seller sells almost identical vegetables.

Thirdly, In perfect competition, no buyer and seller have market power. In the vegetable market also, no single buyer or seller can control the market price or quantity.

Fourthly, There is no barrier to enter or exit a perfectly competitive market. In the vegetable market also, new farmers can easily enter the market or existing farmers can easily exit the market.