Principles of Economics (Second Edition)
2nd Edition
ISBN: 9780393623826
Author: Lee Coppock, Dirk Mateer
Publisher: W. W. Norton & Company
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Question
Chapter 3, Problem 1QFR
To determine
The working of a competitive market and its reliability on the existence of many buyers and sellers
Expert Solution & Answer
Explanation of Solution
In
The market depends on the existence of many buyers and sellers because of the following reasons:
- There are so many customers that one customer can purchase a very small portion of the market supply, likewise a single seller can provide a very small fraction of the total output too. Hence in relation to the sector it belongs, the size of the competitive firm is very small.
- All suppliers provide a homogenous product in a perfect competition market, in simple words all the competitive firm's products are the same.
- Since many sellers sell more or less the same product or service, sometimes a single business is an irrelevant part of the market. It has no control over both the supply and price of the market.
- Buyers, as well as sellers, have complete knowledge of the current market price. That is why in a perfect competition market there can only be one price.
- A new business can freely enter into this particular type of market or an existing business can freely leave the industry in the longer term.
Hence, a competitive market depends on the presence of many consumers and producers as there are huge amount of buyers and sellers for a single product or service. The products of the competitive market are homogenous or identical.
Economics Concept Introduction
Introduction:
A perfect competition market is one where a huge number of sellers compete with each other to fulfill the demands and requirements of a huge number of consumers. The brief idea of perfect competition market is given in the following diagram:
Figure - A
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Chapter 3 Solutions
Principles of Economics (Second Edition)
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