(a) What is a market? [4 marks]
(b) Explain the main features of a perfectly competitive market. [16 marks]
Explanation
(a)A market refers to any system or arrangement by which persons and institutions are brought into contact to exchange goods and services
(b) The features are
(i) Buyers and sellers are price takers. A price taker is a firm or individual who takes the market price as given.
(ii) Many buyers and sellers. The number of buyers and sellers should be so large that no single buyer or seller can influence the price of the commodity
(iii) Free entry and exit. No barriers like technological or efficient scale of operation, taxes, quotas etc which allow only one firm to produce at the lowest average
total cost.
(iv) Homogeneous product. The goods sold are perfect substitutes.
(v) No preferential treatment to either buyers or sellers in the market.
(vi) Complete information of the market conditions must be available to operators of the market.
(vii) No transport cost