Perfect competition

Question 1

Assumptions of a perfectly competitive market

Answer 1

• Each firm too small to affect price via a change in supply
• Homogenous products that are perfect substitutes for each other
• Consumers have perfect information about prices
• Transactions between buyers and sellers are costless
• All industry participants and new entrants have equal access to resources
• No barriers to entry and exit of firms in the long run
• A price take

Question 2

Homogenous products

Answer 2

> Cement
Wheat
Sporting bets
Flowers
Fruit in a big street market
Bars in Spanish resort
- Buyers cannot tell the difference between product from different firms
- Therefore there is no branding of products and brand loyalty does not exist
- In reality firms are unlikely to have identical products, even carrots will be of different quality and branding will differentiate the product in the eyes of the consumer