Perfect Markets in General Essay
Perfect market is a situational market that is rare in real life (Rittenberg & Tregarthen, 2011). Perfect competition in the market occurs in a way that it is difficult for any stakeholder to influence the price of commodities. In this case, automobile, beer and corn markets are examples of perfect market models.
A perfect competition market is, therefore, an imaginary situation that is characterized by large number of buyers and sellers. The buyers and sellers are many, but their individual consumer behavior has no impact on the market (Rittenberg & Tregarthen, 2011).
Similarly, the demand of one buyer is so insignificant compared to the total demand in the market and, therefore, no individual behavior can influence the prices. There are few competitive perfect markets in existence where the conditions of the perfect market are strict. (Salemi, & Hansen, 2005, p.29)
In this case, the automobile, beer and corn industries have influenced the buyer selection in their products so that products can be bought at different prices. A good example of perfect competitive market is where many farmers are producing corn.
Moreover, in the automobile industry, many dealers sell similar models of cars that one can barely differentiate. “The firms in these markets are price takers and are characterized by perfect knowledge, freedom of entry and exit of the market” (Salemi, & Hansen, 2005, p.29). There is also non-governmental interference in their activities, lack of excess supply and demand, and less transport costs.
In the beer and automobile industries, the seller has perfect knowledge about the market. Therefore, no one would conduct business at their preferred price other than the equilibrium price. For example, today a person could be assembling cars and then he or she can decide to clear the stock and start something else.
In these market models, all buyers are identical in the eyes of sellers. There are also no advantages of selling products to particular buyers (Salemi, & Hansen, 2005). The beer and the automobile companies have no personal recognition or preference of their buyers.
The prices in these markets are determined strictly by the interplay demand and supply. There is no government intervention in the form of taxes or subsidies, quotas, price controls among other regulations (Salemi, & Hansen, 2005). This factor makes the automobile and beer industries sell all what they supply in the market.
The buyers are able to buy all what they require because there is no deficit in supply. The other conditions that place these products under perfect mobility are factors of production. All factors of production including land, capital, labor, and entrepreneurship can be easily switched from one use to another. In beer, automobile, and corn market, factors of production are assumed to be perfectly mobile.
Further, it is assumed that buyers and sellers are located in one area. As such, they do not incur any costs in transporting their goods. The sellers in these markets cannot, therefore, charge higher prices to cover the cost of transport.
In the perfect markets, the buyers have perfect knowledge of the prices offered by different firms on certain products. The products sold have homogeneity. Perfect competition is advantageous to the society because the price equals the marginal cost of production in each firm. The price offered is reasonable and no single firm monopolizes the market.
Rittenberg, L., & Tregarthen, T. (2011). Principles of economics . Irvington, NY: Flat World Knowledge.
Salemi, M. K., & Hansen, W. L. (2005). Discussing economics: A classroom guide to preparing discussion questions and leading discussion . Cheltenham: Edward Elgar.
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Perfect Markets in General Essay. Perfect market is a situational market that is rare in real life (Rittenberg & Tregarthen, 2011). Perfect competition in the market occurs in a way that it is difficult for any stakeholder to influence the price of commodities. In this case, automobile, beer and corn markets are examples of perfect market models.
QUESTION 2: MICRO ECONOMICS 40 MARKS- 30 MINUTES 2.1. Answer the following questions 2.1.1. List TWO characteristics of a perfect market. (2x1) (2) 2.1.2. Why would a producer of a product with a unitary price elasticity demand not use price to increase profits? (1x2) (2) 2.2. Study the table below and answer the questions.
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Past exam papers for grade 11 Economics. 2023-2012 past March, June, September, and November exam papers + memos. Available in Afrikaans and English. Download all question papers for free.
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