Question

In: Economics

list of two (2) markets or industries that you think are Perfectly Competitive (PC) AND give...

list of two (2) markets or industries that you think are Perfectly Competitive (PC) AND give a justification for why each one is PC. Be sure to justify using the market characteristics .

Solutions

Expert Solution

1) Market for agricultural commodities .Eg; market for wheat.

We know that perfect competition is a market characterised by the existence of a large number of sellers selling homogenous product. Sellers in perfect competition are price takers. Perfect information and freedom of entry and exit are also features of perfect competition.

Now let's have look at whether wheat market has any of these characteristics. There are a large number of buyers and sellers of wheat. Wheat is a homogeneous product. It looks the same for all . Sellers can't rise the price of wheat as they wish to .lf some one rises the price of wheat, we can always go to another seller. In addition to that, there are no such restrictions which prevents the producer of wheat from selling it. Buyers also seem to have good information about the price of wheat. So wheat market can be considered as an example of perfect competition to a greater extent

2) Foreign exchange market.

Currency is overall a homogeneous commodity . There are a large number of buyers and sellers of currency in a foreign exchange market. Entry and exit don't involve any rigourous restrictions. Buyers have almost perfect information about the happenings in the market. No one person can control the price in a foreign exchange market and they make use of it in their advantage. Therefore foreign exchange market also possess characteristics of perfect competition.


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