A market with no barriers to entry and a large number of price-setting firms is called a perfectly competitive market. This type of market structure is characterized by the following features:
1. Large number of buyers and sellers: There are numerous firms producing homogeneous (identical) products and a large number of buyers seeking those products. No single firm or buyer has enough market power to influence the market price.
2. Homogeneous products: All firms in the market produce identical products, leading to perfect substitutability for buyers. This means consumers do not have any preference for one firm's product over another's.
3. Perfect information: Both buyers and sellers have access to complete information about market conditions, including prices, quantities, and quality of goods. This ensures transparency in the market and prevents any information asymmetry.
4. Price-taking behavior: Individual firms have no control over the market price and must accept the prevailing market price as given. Each firm is a price taker, meaning it takes the market price as a constraint and adjusts its quantity of production accordingly.
5. No barriers to entry or exit: New firms can easily enter or exit the market without any restrictions or significant costs. This absence of barriers ensures that firms can freely compete with each other, leading to minimal market concentration.
In a perfectly competitive market, since there are no barriers to entry and a large number of firms, competition is intense, and firms have no power to set prices. The market price is determined by the forces of supply and demand, achieving an equilibrium at which no firm can exert any influence on price.
What is a market with no barriers to entry and a large number price-setting
firms
1 answer