1. Characteristics of competitive markets The model of competitive markets relies on the following four core assumptions: 1. There must be many buyers and sellers, none of which is large in relation to total sales or purchases. In other words, a few players can't dominate the market. 2. Each n'n produces and sells a homogeneous product that is indistinguishable from all other rms' products in a given industry. That is, buyers must regard all sellers' products as equivalent, or identical. 3. Buyers and sellers have all relevant information about prices, product quality, sources of supply, etc. 4. Firms have free entry into and exit from the industry. New rms can enter the market easily, and existing rms can exit the market easily. There are no barriers to entry or exit. The rst three assumptions imply that all consumers and rms are price takers. The nal assumption is not necessary for price-taking behavior, but guarantees that a market remains competitive in the long run. Identify wheeler or not each of the following scenarios describes a perfectiy competitive market, along with the correct explanation of why or why not. Scenario Perfectly competitive? There are hundreds of high school students in need of algebra tutoring services in San V Francisco. 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. In a major metropolitan area, one chain of coffee shops has gained a large market share V because customers feel its coffee tastes better than that of its competitors Two taxi companies serve most of the market in a big city. Consumers don't care which 7 taxi company they takeif they decide it's worth taking a taxi, they ag down the nearest ("19. The government has granted the U.S. Postal Service the exclusive right to deliver mail. 7