Perfect competition is the first of four basic market models that we study in th

Question

Perfect competition is the first of four basic market models that we study in this course.

Choose a market for a good in your area that seems to be a perfectly competitive market. Write four or five substantive paragraphs that describes the market and answers the following questions:

•Identify the buyers and sellers as well as the goods or services.
•How closely do real world conditions match the characteristics listed in the model?
•Are the sellers price takers?
•Do they compete using price?
•Is the good in question standardized?
•Is this market regulated by government in any way
•Explain the competitive environment

Explanation / Answer

Let's pick gasoline. •Identify the buyers and sellers as well as the goods or services. The buyers are everyone who has a car. The sellers are the gas stations. The good is the gasoline. •How closely do real world conditions match the characteristics listed in the model? Fairly closely. There are lots of buyers and sellers, information on prices and qualities is available. The good's quality is fairly homogeneous across firms, though there are some slight deviations in quality and brand preferences. •Are the sellers price takers? Mostly, yes. There is a market price for gasoline. A firm that prices significantly above market price loses most/all of business. There may be slight deviations in prices due to different locations or brand preferences. But this is okay since there is never really a truly perfectly competitive market. •Do they compete using price? Absolutely. Gas stations advertise prices from the road as their primary form of competition. •Is the good in question standardized? Mostly, yes. However, some firms have tried to differentiate their product through fuel additives. •Is this market regulated by government in any way Yes. There is a gasoline tax. This makes the market less perfectly competitive, but the government regulates virtually everything in the economy either directly or indirectly. •Explain the competitive environment The environment for gasoline sales is very competitive. There are lots of stations and lots of customers all mostly interested in the price. While there is a gasoline tax, different locations, and fuel additives that create brand preferences, this market is much closer to perfectly competitive than most.

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