Question

There are four structural components to a perfectly competitive market. Which one of the four components is the most important to market operation and why?

Answer 1

The most important one is large number of buyers and sellers, because it makes firms price takers.

Step-by-step explanation:

The four main structural components of a perfectly competitive market are as mentioned below:

1. A large number of buyers and sellers
2. Free entry and exit in the market
3. Homogenous products
4. Perfect knowledge at low cost or free of cost

Out of these four components, the most important is a large number of buyers and sellers in the market. A large number of agents operating in the market gives firms the characteristics of a price taker.

There are so many agents in the market that one agent cannot affect the market through its actions. This is the most distinguishing characteristic of a perfectly competitive market. In all other market forms, firms are price makers.