1. Characteristics of competitive markets The model of competitive markets relie
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1. Characteristics of competitive markets The model of competitive markets relies on these three core assumptions: 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. Scenario Dozens of companies produce plain white socks Consumers regard plain white socks as identical and don't care who manufactures their socks. The government has granted a patent to a pharmaceutical company for an experimental AIDS drug. That company is the only firm permitted to sell the drug A few major airlines account for the vast majority of air travel. Consumers view all airlines as providing basically the same service and will shop around for the lowest price. There are hundreds of colleges that serve millions of students each year. The colleges vary by location, size, and educational quality, which enables students with diverse preferences to find schools that match their needs. Competitive? Yes, meets all assumption:s No, no free entry No, not many sellers No, not an identical product Grade It Nowav ontinue Continue without savingExplanation / Answer
In the first case there are many companies i.e there àre dozones of companies. These companies sell similar products. Consumers do not distinguish the plain white shocks. Thats why the products are identical. There are many sellers and many consumers and as they can purchase from any where there is same price for that product. So the main three assumptions are satisfied here. Though there is no case of resource mobility here. So there satisfy all the assumptions.
In 2nd case where the govt has granted the patent for selling a drug to a company. So here we dont have many sellers and the first characteristics of many sellers is not supported here. So it will not be perfect competition.
In the third case consumer buy for airlines ticket. Here the basic facilities of the airlines are same but the price of ticket is different. So here the prices are not taken and it is not given. Also there is not many sellers. So it will not be perfect competition.
In the fourth case there are many colleges but the facilities provided by the colleges are not qualatatively same. So the products are not identical. So it will not be perfect competition.
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