What are the key components of a perfectly competitive market?
(A) Large number of buyers and sellers.
(B) Homogeneous product.
(C) Free Entry and exit.
(D) Asymmetric Information.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (A), (B) and (C) only
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(A) Large number of buyers and sellers: This ensures that no single buyer or seller can influence the market price, making them all "price takers."
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(B) Homogeneous product: The products offered by different sellers are identical and perfect substitutes for one another.
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(C) Free Entry and exit: Firms can enter and leave the market without any legal or artificial restrictions.
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Perfect Knowledge/Information: Buyers and sellers have complete and equal access to all relevant information about prices, quality, etc.
Asymmetric Information (D) is the opposite of the "Perfect Knowledge" assumption and it undermines perfectly competitive outcomes. Therefore, it is not a characteristic of a perfectly competitive market.