Characteristics of competitive markets.
The model of competitive markets relies on these three core assumptions:
1. There must be many buyers and sellers-a few players can't dominate the market.
2. Firms must produce an identical product-buyers must regard all sellers' products as equivalent.
3. Firms and resources must be fully mobile, allowing for free entry into and exit from the industry.
The first two conditions imply that all consumers and firms are price takers. While the third is not necessary for price-taking behavior, assume for this problem that a market cannot maintain competition in the long run without free entry. Identify whether or not each of the following scenarios describes a competitive market, along with the correct explanation of why or why not.
A. A few major airlines account for the vast majority of air travel. Consumers view all airlines as providing basically the same service and will shop around for the lowest price.
B. The government has granted the U. S. Postal Service the exclusive right to deliver mail.
C. There are hundreds of colleges that serve millions of students each year. The colleges vary by location, size, and educational quality, which allows students with diverse preferences to find schools that match their needs.
D. There are hundreds of high school students in need of algebra tutoring services in Chicago. Dozens of companies offer tutoring services, and the parents who seek out tutors view the quality of the tutoring at the different companies to be largely the same.