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 KCSE business studies paper 2 revision questions and answers set 6

Outline five features that characterizes a perfectly competitive product market and explain the significance of each feature.

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Answer Text:
-There are many buyers and many sellers. This ensures that no single buyer or seller can influence the market
-Free entry and exit of firms to the market. Ensures that normal profits are earned by
all firms in the long-run in the industry
-There is perfect mobility of factors of production. This ensures that resources are optimally allocated.
-There is no transport costs. This ensures that prices do not vary due to regional differences.
-The products are homogeneous. This means that units produced are
identical so that the buyers have no preference between different units.
-There is perfect knowledge about the prices,quality and other market conditions on the part of the buyers and sellers. This ensures rational decision making by consumers and producers.


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