Question

Can you name five examples of perfectly competitive markets? Why or why not?

Short answer

Five examples of markets that display characteristics of perfect competition include agricultural markets, stock markets, foreign exchange markets, online retail marketplaces, and local farmers' markets. However, none of these markets fully meet all criteria of perfect competition due to factors such as information asymmetry and occasional price influence by big players. Perfect competition serves mainly as a theoretical model to understand market structures, with real-world markets often deviating from this ideal.

Step-by-step solution

Identify Five Examples of Competitive Markets

To list five examples of markets that display characteristics of perfect competition: 1. Agricultural markets (for example: the market for wheat, corn, or milk) 2. Stock markets 3. Foreign exchange markets 4. Online retail marketplaces (like eBay or Amazon) 5. Local farmers' markets

Discuss each Market's Degree of Competition

Each market needs to be assessed in terms of the defining features of perfect competition: many buyers and sellers, identical products, perfect knowledge, and no price control by individual buyers or sellers. 1. Agricultural markets: They involve many sellers (farmers) and buyers. The products (wheat, corn, milk etc.) are relatively standardized. However, perfect knowledge and price-taking behaviors may not always be present. 2. Stock markets: Many buyers and sellers exist, and shares of a specific company are equivalent regardless of who sells them. But again, perfect knowledge is not practically possible. 3. Foreign exchange markets: Here, the traded products (different currencies) are identical, and there exist numerous buyers and sellers. However, some major banks or financial institutions may have enough power to influence exchange rates, deviating from the perfect competition model. 4. Online retail marketplaces: While there exist many buyers and sellers, the products sold aren't always identical, and perfect knowledge doesn't exist due to information asymmetry between buyers and sellers. 5. Local farmers' markets: They consist of many local sellers and buyers with relatively standardized produce, but often lack perfect knowledge and absolute absence of price influence.

Concluding Remarks

These markets display certain characteristics of perfect competition but do not fully meet all its criteria largely due to information asymmetry and occasional price influence by big players. Perfect competition is more of a theoretical model to understand the fundamentals of market structures. Real world markets often deviate from this ideal.