1. There must be many buyers and sellers-a few players can't dominate the market. 2. Firms must produce an identical product-buyers must regard all sellers' products as equivalent. 3. Firms and resources must be fully mobile, allowing free entry into and exit from the industry. The first two conditions imply that all consumers and firms are price takers. While the third is not necessary for price-taking behavior, assume for this problem that a market cannot maintain competition in the long run without free entry. Identify whether or not each of the following scenarios describes a competitive market, along with the correct explanation of why or why not. Is the market competitive? Scenario Dozens of clothing manufacturers produce plain black undershirts. Consumers view plain black undershirts as identical and have no preference which company makes their undershirts. There are thousands of car dealerships that serve millions of consumers each year. The dealerships vary by location, offerings, and quality, allowing consumers with an array of preferences to find vehicles that match their individual needs. The government grants a patent to a pharmaceutical company protecting an experimental cancer treatment. That company is the only pharmaceutical producer allowed to manufacture and sell the treatment. A few major airline companies represent a great majority of total air travel. Consumers consider all different flights to be essentially the same, and comparison shop for the lowest price. No (not many sellers)
1. There must be many buyers and sellers-a few players can't dominate the market. 2. Firms must produce an identical product-buyers must regard all sellers' products as equivalent. 3. Firms and resources must be fully mobile, allowing free entry into and exit from the industry. The first two conditions imply that all consumers and firms are price takers. While the third is not necessary for price-taking behavior, assume for this problem that a market cannot maintain competition in the long run without free entry. Identify whether or not each of the following scenarios describes a competitive market, along with the correct explanation of why or why not. Is the market competitive? Scenario Dozens of clothing manufacturers produce plain black undershirts. Consumers view plain black undershirts as identical and have no preference which company makes their undershirts. There are thousands of car dealerships that serve millions of consumers each year. The dealerships vary by location, offerings, and quality, allowing consumers with an array of preferences to find vehicles that match their individual needs. The government grants a patent to a pharmaceutical company protecting an experimental cancer treatment. That company is the only pharmaceutical producer allowed to manufacture and sell the treatment. A few major airline companies represent a great majority of total air travel. Consumers consider all different flights to be essentially the same, and comparison shop for the lowest price. No (not many sellers)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:1. There must be many buyers and sellers-a few players can't dominate the market.
2. Firms must produce an identical product-buyers must regard all sellers' products as equivalent.
3. Firms and resources must be fully mobile, allowing free entry into and exit from the industry.
The first two conditions imply that all consumers and firms are price takers. While the third is not necessary for price-taking behavior, assume for this
problem that a market cannot maintain competition in the long run without free entry.
Identify whether or not each of the following scenarios describes a competitive market, along with the correct explanation of why or why not.
Is the market competitive?
Scenario
Dozens of clothing manufacturers produce plain black undershirts. Consumers view plain
black undershirts as identical and have no preference which company makes their
undershirts.
There are thousands of car dealerships that serve millions of consumers each year. The
dealerships vary by location, offerings, and quality, allowing consumers with an array of
preferences to find vehicles that match their individual needs.
The government grants a patent to a pharmaceutical company protecting an experimental
cancer treatment. That company is the only pharmaceutical producer allowed to
manufacture and sell the treatment.
A few major airline companies represent a great majority of total air travel. Consumers
consider different flights to be essentially the same, and comparison shop for the
lowest price.
No (not many sellers)
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