Final answer:
A saturated market is one where most potential buyers already possess a product that meets their needs, making it difficult for firms to find new customers. This typically happens when the market is filled with numerous sellers providing identical products and consumer demand has been largely satisfied.
Step-by-step explanation:
The term saturated market refers to a market scenario where most potential buyers already own a product that satisfies their needs or wants. This situation arises when the market is full of sellers who offer identical products, and consumers have already made purchases to meet their demands. Consequently, new firms find it challenging to enter or grow within the market due to the high competition and the lack of unmet demand.
In a saturated market, firms may struggle to increase sales because consumers do not feel the need to purchase additional products, which contrasts with a market where consumers demand more goods than are available. Here, prices can rise and stimulate more suppliers to enter, but this is not the case in a saturated market. The perfect competition framework is important for understanding this concept, where many sellers and buyers interact, products are identical, and information about the products is readily available. However, a significant characteristic of a saturated market within perfect competition is the inability of firms to influence prices due to the uniformity of the products offered.