Chapter 3, Problem aWYWL

To determine

What is a competitive market?

Concept Introduction:

Competitive market: The competitive market is a market where there is a large number of buyers and sellers in the sellers are profit motive and the buyers want to maximize their satisfaction. In a competitive market, no single product can influence the price of the commodities. If one producer increases the price of his good no one will follow him and the producer may incur losses. In a perfectly competitive market, the firms will be selling a homogenous product.

Explanation of Solution

A competitive market is a place where there is a large number of buyers and sellers in the economy. And there are selling almost the homogenous products in the economy, the sellers are profit motive and the buyers want maximum satisfaction from the products. There is a rivalry in the competitive market the actions of one firm affect the decision of another firm so it leads to rivalry in the markets. Another feature of the competitive market is excludability the firms may exclude the consumers from enjoying their good or service for an example the movies are only shown to the persons who buy the movie ticket if there is no excludability the consumers become the free riders. Another feature of the competitive market is the available information is fully reflected in the market, for example, there is a report that hamburger consumption creates more health problems to the people, so due to this report, there will be decreased demand for hamburgers in the market. So the available information is fully reflected in the market. The very important feature of the competitive market is there are no barriers to entry that means firms can enter and leave the market at any time, there is complete freedom of firms to enter or leave the market.