A purely competitive economy assumes the existence in each industry of a:
A)large number of small firms facing a large number of small buyers.
B)few large firms facing a large number of small buyers.
C)large number of small firms facing a few large buyers.
D)few small firms facing a few small buyers.

Question

Quizplus · Accepted Answer

A purely competitive economy assumes the presence of a large number of small firms in each industry, and each of these firms faces a large number of small buyers. This is the essence of perfect competition, where no individual firm has market power and all buyers and sellers have perfect information about market conditions. Option B is incorrect because it suggests the presence of a few large firms, which is typical of an oligopoly market structure. Option C is also incorrect because it suggests the presence of a few large buyers, which is typical of a monopsony market structure. Option D is incorrect because it suggests the presence of a few small firms facing a few small buyers, which is neither a perfect competition nor any other market structure.

A Purely Competitive Economy Assumes the Existence in Each Industry