Theory question 108
Market Structures(a) What is a market?
(b) Explain the main features of a perfectly competitive market.
Show the model answer
Model answer
(a) A market is any arrangement by which buyers and sellers come into contact to exchange goods and services at agreed prices; it need not be a physical place.
(b) Large number of buyers and sellers; homogeneous (identical) products; free entry and exit; perfect knowledge of the market; perfect mobility of factors; no transport costs; firms are price takers (one uniform price); no government interference.
Explanation
A market need not be a place; any contact for exchange will do.