The perfect competitive market - Assignment Example

The Perfect Competitive Market The Perfect Competitive Market Identify the buyers and sellers as well as the goods or services. The product is fishballs, a type of street food found in Asia, in particular, the Philippines. The buyers are people in general who walk up to the stands buying it for themselves as snack food. Sellers are usually the owners of the food stand which are basically carts on wheels with deep frying pans (Veneracion, 2004). They can usually be seen in populated areas like outside schools, hospitals, churches, bus terminals, public parks and in neighbourhood street corners. 2. How closely do real world conditions match the characteristics listed in the model?

These street food vendors are numerous. One probable reason for this is the small capital requirement to put up the business. It is basically just a wooden pushcart with a single burner and small gas tank in it. Another reason is the absence of restrictions on how many of them can sell it and where they can sell it. The business is so small the local government does not bother to regulate them nor tax them. And thirdly, the product “fishball” is widely popular with the population. Practically everyone in the lower to middle classes eat this food. 3. Are the sellers price takers?

Yes the fishball vendors are price takers. The price of fishballs sold by vendors is the same wherever you go in the city. This is because these vendors are so many that each one is so small when compared with the total number of vendors and the total amount of fishballs sold in the metropolis. Each vendor has no power to influence price. If one vendor tries to increase his price, it is so easy for the buyers to find another vendor who sells at a lower market price. Consequently, that vendor’s number of buyers will decrease and so will his revenues; thus, there is no incentive for him to increase price.

If a vendor tries to lower his price in the hope of attracting more customers, the resulting increase in volume sales, if any, will be minimal. This is because his capacity to sell is limited. The inventory he can carry in his cart is only so much. Most likely he is already selling as many as he can at the higher market price; therefore, he does not have any incentive to lower his price. He has no choice but to sell at the market price. 4. Do they compete using price? No, they do not compete using price.

Competition sometimes lies in their location. For example, for vendors waiting outside the church, the one nearest the gate would have the advantage over the others. But again, because each vendor is small compared to the total number of buyers, that vendor can only cater to so many buyers. Other buyers will have to satisfy their fishball cravings from the other vendors. 5. Is the good in question standardized? Fishballs sold by one vendor is the same fishball sold by any other vendor. This therefore fulfils one major characteristic of a perfectly competitive market which is to have a homogenous product (tutor2u, n.d.).

The sauces used by vendors are also essentially the same. There are usually three different sauces, one type is sweet, sweet /sour, and spicy (Veneracion, 2004). At most, the differences lie in how sour, sweet and spicy their sauces are. But consumers also have varying degrees of preferences; thus, from the total market standpoint, no one seller has a distinguishing advantage over other sellers in this regard. 6. Is this market regulated by government in any way? The government does not interfere in this market.

The fishball market is considered to be part of the underground economy; therefore, it is not taxed. 7. Explain the competitive environment. There is freedom to enter or exit from the industry mainly because of the low capital requirement and absence of government interference (tutor2u, n.d.). Thus, one can find a large number of ambulant vendors competing to satisfy the cravings of an even larger number of fishball buyers. Also, their products can be said to be perfect substitutes for one another as fishballs are basically the same everywhere.

Because of the above factors, there is stiff competition among them. This results in a low market price and lower profits (tutor2u, n.d.). Sellers are price takers, they take the market price as a given and individually do not have influence to change it. But these characteristics do not discourage the sellers. References tutor2u. (n.d.). Perfect competition --- introduction. Retrieved September 6, 2011, from tutor2u.net: http://tutor2u.net/economics/content/topics/monopoly/perfect_competition.

htm Veneracion, C. (2004, December 5). Ambulant fishballs vendor. Retrieved September 6, 2011, from homecookingrocks.com: http://homecookingrocks.com/ambulant-fishballs-vendor/