Question

1. Summarize What are the four conditions of a purely competitive market?

Answer 1

Firms in perfect competition meet four basic assumptions: identical products, many buyers and sellers, complete information, and free entry and exit. Perfectly competitive firms are price takers.

Step-by-step explanation:

Firms in perfect competition meet four basic assumptions:

1. Many firms produce identical products: In a perfectly competitive market, each firm sells a product that is identical to the products sold by other firms in the market. This means there is no differentiation between products and consumers have no preference for one brand over another.
2. Many buyers and sellers: Perfect competition requires a large number of buyers and sellers in the market. No single buyer or seller has the ability to influence the market price.
3. All relevant information is available: Buyers and sellers have complete information about prices, quality, and other relevant factors that can affect their decisions.
4. Free entry and exit: Firms can easily enter or exit the market without facing any barriers or restrictions.

These assumptions imply that a perfectly competitive firm is a price taker. This means the firm cannot set the market price and must accept the prevailing market price as given.

Answer 2

Many consumers and suppliers

Identical products

Informed buyers and sellers

Free market entry and exit

Step-by-step explanation:

The free market economy is an economic type that strides toward total freedom when it comes to production and consumption. With other words, all of the companies should be able to produce whatever they want and the consumers should be able to buy whatever they want and as much as they want.

In order for the market to become purely competitive there are four main conditions that need to be fulfilled:

• many consumers and suppliers
• identical products
• informed buyers and sellers
• free market entry and exit

These conditions will enable the companies to enter a market by will and to exit it by will without any economic downsides. The perfect competition will result in products of the highest quality but for the lowest possible prices, thus creating a price equilibrium. Both the producers and the consumers should be able to have all of the information at disposal, and there should be many producers and many consumers.