How markets work - The market forces of supply and demand - Markets and competition

4 important questions on How markets work - The market forces of supply and demand - Markets and competition

When is a market competitive?

When there are so many buyers and sellers, that each has a negligible impact on the market price.

To simplify, we can assume that markets are perfectly competitive. What are the two characteristics of a perfectly competitive market?


1. The goods offered for sale are all exactly the same.
2. The buyers and sellers are so numerous that they have no individual influence on market price.

Why do we call buyers and sellers price takers, in perfectly competitive markets?

Because they must accept the price that the market determines.
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How do we call a seller, in a market in which there is only one seller, and this seller sets the price?

A monopoly.

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