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Economics Assignment - Competitive Markets

   

Added on  2020-03-16

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ECONOMICSQuestion 1Rational Self-interested consumers – This implies that the actions and decisions of theconsumers would be rational and would aim to maximise their underlying utility and wouldpurchase any good at the lowest available price.Rational Profit Maximising Firms – Firms which are driven by the objective of maximisingprofits and hence would decide to produce at a point where MR=MC.Competitive markets with price taking behaviour – This implies that while the firms docompete with each other but the price is decided by the industry and individual firms have tocharge the same.The perfect competition has been designed to describe a basic market structure and thusfacilitate the description of other market structures which have different features to thoseidentified. Hence, it serves as a basic market structure. The alternatives exist in the form ofmonopoly, oligopoly and other market structures.Question 2Assumptions that underlie a perfect competition marketNo entry or exit barrierNo product differentiationFirms as price takerMany buyers and many sellersThe vegetable market can be assumed as an example of perfect competition. Clearly, in thismarket there are many buyers and many suppliers or sellers. Also, the price of the vegetablesis essentially dependent on the industry level demand and supply and individual firms cannotalter the same. Besides, considering the low capital involved, entry and exit barriers wouldnot exist. Finally, the sellers are essentially selling similar kind of vegetables with minimalproduct differentiation. Question 3The Boxing Day sales tell us that the law of demand remains intact. This is because there is adecrease in price and hence there is an increase in demand which leads to long queues. The
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