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Which of the following is a characteristic of a perfectly competitive market?
Few sellers
Homogeneous products
High entry barriers
Price discrimination
Homogeneous products
In a perfectly competitive market, firms produce identical or homogeneous products, meaning buyers perceive no difference between the output of any competing sellers. Consequently, individual firms are price takers with horizontal demand curves. This market structure ensures zero long-term economic profit and free entry and exit.
In a perfectly competitive market, firms produce identical or homogeneous products, meaning buyers perceive no difference between the output of any competing sellers. Consequently, individual firms are price takers with horizontal demand curves. This market structure ensures zero long-term economic profit and free entry and exit.
Economic structure theoretical baseline established by Adam Smith's classical mechanics of free markets and formalised in microeconomic general equilibrium theory (Walrasian economics).
Large number of buyers and sellers, making each individual participant a price taker
Homogeneous (identical) products eliminating non-price competition based on product differentiation
Free entry and exit of firms ensuring zero economic profit in the long run
Perfect information and zero transaction costs for all market participants
Option A (Few sellers) describes oligopoly or monopoly market structures.
Option C (High entry barriers) characterizes monopoly, oligopoly, or monopolistic competition, whereas perfect competition features free entry/exit.
Option D (Price discrimination) requires market power and differentiated consumer elasticities, which are absent under perfect competition.
Real-world approximation: Agricultural commodity markets (like unbranded wheat or rice) come closest to perfect competition.
B is correct тАФ Homogeneous products ensure that individual sellers have no market power to set custom prices.
Contrast perfect competition with imperfect markets (Monopoly and Monopolistic Competition) frequently asked in SSC CGL, RRB NTPC, and UPSC preliminary economics.
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