Characteristics of competitive market
1. Large number of buyers and sellers: A competitive market consists of a large number of buyers and sellers, none of whom have the power to influence prices on their own.
2. Homogeneous products: In a competitive market, all goods and services are identical or very similar, making it easy for consumers to compare prices and quality.
3. Perfect information: Buyers and sellers in a competitive market have access to all relevant information about prices and product specifications, allowing them to make informed decisions.
4. Low barriers to entry and exit: It is easy for new firms to enter the market and for existing firms to leave, ensuring that prices are kept competitive.
5. Price takers: In a competitive market, individual buyers and sellers have no control over prices and must accept the prevailing market price.
6. Efficient allocation of resources: In a competitive market, resources are allocated efficiently to their most productive uses, resulting in the optimal production and distribution of goods and services.
7. Price equilibrium: In a competitive market, prices adjust quickly to changes in supply and demand, reaching an equilibrium where quantity supplied equals quantity demanded.
8. No externalities: Competitive markets do not suffer from externalities, such as pollution or congestion, as firms are incentivized to internalize the costs and benefits of their production decisions.
9. Absence of monopoly power: In a competitive market, no single firm has the power to influence prices or control the market, ensuring fair competition and consumer choice.
10. Profit maximization: Firms in a competitive market aim to maximize profits by producing goods and services at the lowest possible cost and selling them at the highest possible price.