1. Characteristics of competitive markets
The model of competitive markets relies on these three core assumptions:
1.
There must be many buyers and sellers a few players can't dominate the market.
2.
Firms must produce identical products buyers must regard all sellers' products as equivalent.
3.
Firms and resources must be fully mobile, allowing free entry into and exit from the industry.
The first two conditions imply that all consumers and firms are price takers. While the third is not necessary for price-taking behavior, assume for this problem that a market cannot maintain competition in the long run without free entry.
Identify whether or not each of the following scenarios describes a competitive market, along with the correct explanation of why or why not.
Scenario
Competitive?
The government has granted the U.S. Postal Service the exclusive right to deliver mail.
________________
Several stores in the mall sell hooded sweatshirts. Each store's sweatshirts reflect the style of that particular store. Additionally, some makers use higher-quality cotton than others, which is reflected in the apparel's prices.
Two taxi companies serve most of the market in a big city. Consumers don't care about which taxi company they take if they decide it's worth taking a taxi, they flag down the nearest one.
_________________
There are dozens of pasta producers that sell pasta to hundreds of Italian restaurants nationwide. The restaurant owners buy from the cheapest pasta producer available to
1. Characteristics of competitive markets
The model of competitive markets relies on these three core assumptions:
| 1. | There must be many buyers and sellers a few players can't dominate the market. |
| 2. | Firms must produce identical products buyers must regard all sellers' products as equivalent. |
| 3. | Firms and resources must be fully mobile, allowing free entry into and exit from the industry. |
The first two conditions imply that all consumers and firms are price takers. While the third is not necessary for price-taking behavior, assume for this problem that a market cannot maintain competition in the long run without free entry.
Identify whether or not each of the following scenarios describes a competitive market, along with the correct explanation of why or why not.
|
Scenario |
Competitive? |
|---|---|
| The government has granted the U.S. Postal Service the exclusive right to deliver mail. | ________________ |
| Several stores in the mall sell hooded sweatshirts. Each store's sweatshirts reflect the style of that particular store. Additionally, some makers use higher-quality cotton than others, which is reflected in the apparel's prices. | |
| Two taxi companies serve most of the market in a big city. Consumers don't care about which taxi company they take if they decide it's worth taking a taxi, they flag down the nearest one. | _________________ |
| There are dozens of pasta producers that sell pasta to hundreds of Italian restaurants nationwide. The restaurant owners buy from the cheapest pasta producer available to |
Related textbook solutions
Related questions
1. Characteristics of competitive markets
The model of competitive markets relies on these three core assumptions:
| 1. | There must be many buyers and sellers a few players can't dominate the market. |
| 2. | Firms must produce an identical product buyer must regard all sellers' products as equivalent. |
| 3. | Firms and resources must be fully mobile, allowing for free entry into and exit from the industry. |
The first two conditions imply that all consumers and firms are price takers. While the third is not necessary for price-taking behaviour, assume for this problem that a market cannot maintain competition in the long run without free entry.
Identify whether or not each of the following scenarios describes a competitive market, along with the correct explanation of why or why not.
| Is the scenario | Competitive? |
|---|---|
| Dozens of companies produce plain white socks. Consumers regard plain white socks as identical and don't care who manufactures their socks. | |
| In a major metropolitan area, one chain of coffee shops has gained a large market share because customers feel its coffee tastes better than that of its competitors. | |
| Scholastik Inc. owns the U.S. copyright to a popular book series. It is the only company with the legal right to publish books in the series in the United States. | |
| In a small town, there are two providers of broadband Internet access: a cable company and the phone company. The Internet access offered by both providers is of the same speed. |
