○ the assumptions of a perfectly competitive market system

Question 1

3 Assumptions

Answer 1

1. strong competition exists between buyers/sellers in market
2. Firms are price takers and no firm has significant market power
3. Products are homogeneous - product differentiation/brand names don’t exist

Question 2

4 Assumptions

Answer 2

4. Large level of consumer sovereignty –> guides how resources are allocated
5. Buyers and Sellers have complete information/ perfect knowledge
6. Easy of entry and exit by producers
7. Sellers and owners of resources aim to maximise their profits/incomes