Multiple Choice
In a competitive market, whether a maker of action cameras is charging a price above, below, or equal to the market equilibrium price depends on:
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3. The Market Forces of Supply and Demand
Competitive Markets
Multiple Choice
Why is perfect competition considered to be rare in the real world?
A
Because all firms in the real world always have identical costs and outputs.
B
Because government regulation ensures that all markets are perfectly competitive.
C
Because most markets have barriers to entry and products are not perfectly homogeneous.
D
Because consumers in the real world have perfect information about all products.
Verified step by step guidance1
Understand the defining characteristics of a perfectly competitive market: many buyers and sellers, identical (homogeneous) products, free entry and exit, perfect information, and no single firm can influence the market price.
Recognize that in the real world, these conditions are rarely all met simultaneously. For example, products are often differentiated rather than identical, which violates the homogeneity condition.
Consider barriers to entry such as high startup costs, legal restrictions, or technology requirements that prevent new firms from entering the market freely, which contradicts the free entry and exit condition.
Acknowledge that consumers often do not have perfect information about all products, prices, or quality, which challenges the perfect information assumption.
Conclude that because of these deviations—product differentiation, barriers to entry, and imperfect information—perfect competition is rare in real markets.
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