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? In a major metropolitan area, one chain of coffee shops has gained a large market share because customers feel its coffee tastes better than that of its competitors. Yes, meets all assumptions / No, no free entry / No, not many sellers / No, not an identical product The government has granted the U.S. Postal Service the exclusive right to deliver mail. Yes, meets all assumptions / No, no free entry / No, not many sellers / No, not an identical product There are hundreds of high school students in need of algebra tutoring services in San Francisco. Dozens of companies offer tutoring services, and the parents who seek out tutors view the quality of the tutoring at the different companies to be largely the same. Yes, meets all assumptions / No, no free entry / No, not many sellers / No, not an identical product 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. Yes, meets all assumptions / No, no free entry / No, not many sellers / No, not an identical product

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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?
In a major metropolitan area, one chain of coffee shops has gained a large market share because customers feel its coffee tastes better than that of its competitors.	Yes, meets all assumptions / No, no free entry / No, not many sellers / No, not an identical product
The government has granted the U.S. Postal Service the exclusive right to deliver mail.	Yes, meets all assumptions / No, no free entry / No, not many sellers / No, not an identical product
There are hundreds of high school students in need of algebra tutoring services in San Francisco. Dozens of companies offer tutoring services, and the parents who seek out tutors view the quality of the tutoring at the different companies to be largely the same.	Yes, meets all assumptions / No, no free entry / No, not many sellers / No, not an identical product
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.	Yes, meets all assumptions / No, no free entry / No, not many sellers / No, not an identical product

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