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 for 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 behaviour, 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 Two taxi companies serve most of the market in a big city. Consumers don't care which taxi company they take-if they decide it's worth taking a taxi, they flag down the nearest one. Several stores in the mall sell hooded sweatshirts. Each store's sweatshirts reflect the style of that particular store. Additionally, some stores use higher-quality cotton than others, which is reflected in the apparel's prices. There are dozens of pasta producers that sell pasta to hundreds of Italian restaurants nationwide. The restaurant owners buy from the cheapest pasta producer available to them. The government has granted Canada Post the exclusive right to deliver mail Competitive? Yes, meets all assumptions No, not an identical product No, not many sellers Grade It Now Save & Continue Continue without saving

Explanation / Answer

Answer :-

Scenario Competitive ? Explanation 1). No. There are only two taxi companies in the market. Such situation represents Oligopoly market structure because there are a few service providers in the market. Accordingly, The market is not competitive in first scenario. 2). No. Goods sold by various sellers (stores in the mall) are not homogenous i.e., non-identical in nature. Infact, Product sold by various sellers are differentiated from each other other on the basis of style, shape, design and quality. Accordingly, The market is not competitive in the second scenario since the product of various sellers are not identical. 3). Yes. The third scenario represents competitive market because all of the three important assumptions of competitive market are fulfilled. 4). No. The fourth scenario represents the monopoly form of market because of the exclusive license (right) granted by government to the Canada post for delivery of mail. Accordingly, The market is not competitive in the fourth scenario.

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