What characterizes a competitive market?

A competitive market is characterized by many buyers and many sellers, leading to a situation where no single buyer or seller can influence the market price. This abundance of participants helps ensure that prices reflect the collective supply and demand, leading to more efficient outcomes. In such markets, individual firms are price takers; they must accept the market price as given because their own supply levels have a negligible impact on that price.

The presence of numerous buyers and sellers fosters competition, which incentivizes firms to improve their products and lower prices. This dynamic ultimately benefits consumers through greater product availability and lower costs, contributing to overall market efficiency. In essence, the structure of a competitive market is fundamental in promoting fair prices and quality products for consumers.