What characterizes a competitive market?

A competitive market is characterized by the presence of many buyers and sellers, each of whom is unable to influence the overall market price. This means that the actions of any single buyer or seller have a negligible impact on prices because there are sufficient numbers of participants in the market. This multitude of participants contributes to an environment where price is determined by supply and demand dynamics within the market.

In a competitive market, firms typically produce similar products, leading consumers to have no strong preferences for one seller over another, which reinforces this price-taking behavior. As a result, prices fluctuate based on overall market conditions rather than individual firm strategies.

The other characteristics mentioned do not apply in a competitive market. For instance, having only a few sellers dominating the market indicates an oligopoly rather than a competitive market. Similarly, high barriers to entry for new firms suggest a monopolistic or oligopolistic market structure, as competitive markets allow for new entrants. Lastly, if firm prices are determined by a single seller, that scenario describes a monopoly where one firm holds significant pricing power, contrary to the characteristics of a competitive market where no individual entity can dictate prices.