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 Competitive? Dozens of companies produce plain white socks. Consumers regard plain white socks as identical and don't care who manufactures their socks. Several stores in the mall sellI hooded sweatshirts. Each store's sweatshirts reflect the style of that particular store. Additionally, some makers use higher-quality cotton than others, which is reflected in the apparel's prices. In a small town, there are two providers of broadband Internet access: a cable company and the phone company. The Internet access offered by both providers is of the same speed. Scholastik Inc. owns the U.s. copyright to a popular book series. It is the only company with the legal right to publish books in the series in the United States.
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 Competitive? Dozens of companies produce plain white socks. Consumers regard plain white socks as identical and don't care who manufactures their socks. Several stores in the mall sellI hooded sweatshirts. Each store's sweatshirts reflect the style of that particular store. Additionally, some makers use higher-quality cotton than others, which is reflected in the apparel's prices. In a small town, there are two providers of broadband Internet access: a cable company and the phone company. The Internet access offered by both providers is of the same speed. Scholastik Inc. owns the U.s. copyright to a popular book series. It is the only company with the legal right to publish books in the series in the United States.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text: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
Competitive?
Dozens of companies produce plain white socks. Consumers regard plain white socks as
identical and don't care who manufactures their socks.
Several stores in the mall sellI hooded sweatshirts. Each store's sweatshirts reflect the
style of that particular store. Additionally, some makers use higher-quality cotton than
others, which is reflected in the apparel's prices.
In a small town, there are two providers of broadband Internet access: a cable company
and the phone company. The Internet access offered by both providers is of the same
speed.
Scholastik Inc. owns the U.s. copyright to a popular book series. It is the only company
with the legal right to publish books in the series in the United States.
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