Question

1. Characteristics of competitive markets The competitive market model depends on the following 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—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 Is the market competitive? Dozens of clothing manufacturers produce plain black undershirts. Consumers view plain black undershirts as identical and have no preference which company makes their undershirts. Several online retailers sell vintage crewneck sweatshirts. Each shop's crewnecks are characterized by the style of that particular brand. In addition, some producers use only cotton while others use a polyester blend, a distinction reflected in the price of the crewnecks.

          1. Characteristics of competitive markets

The competitive market model depends on the following 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—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
Is the market competitive?

Dozens of clothing manufacturers produce plain black undershirts. Consumers view plain black undershirts as identical and have no preference which company makes their undershirts.

Several online retailers sell vintage crewneck sweatshirts. Each shop's crewnecks are characterized by the style of that particular brand. In addition, some producers use only cotton while others use a polyester blend, a distinction reflected in the price of the crewnecks.

Added by Jade M.

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