A Level Economics AQA Practice Exam

What are the key characteristics of a perfectly competitive market?

1. A few sellers and many buyers

2. Many buyers and sellers with identical products

3. Few barriers to market entry with varied products

4. One seller with many buyers

The correct answer is: Many buyers and sellers with identical products

In a perfectly competitive market, one of the primary characteristics is the presence of many buyers and sellers. This ensures that no single buyer or seller can influence the market price, leading to a situation where they are price takers. Additionally, the products offered by each seller are identical or homogeneous, meaning that consumers see no difference in quality or features among the products provided by different sellers. This characteristic is crucial because it reinforces competition among sellers solely based on price, further stabilizing the market. In a perfectly competitive market, the ease of entry and exit for firms is also notable, allowing new suppliers to enter when profits are attractive and exit when they are not, although this is not the essence of the correct characteristic highlighted in this question. While the other options reflect different types of market structures—such as monopolistic competition or oligopoly—only the option that describes many buyers and sellers with identical products aligns with the definitions and assumptions of perfect competition.