What are the economic assumptions for a perfectly competitive market?
There are four fundamental assumptions which must all be satisfied:
There must be many buyers and sellers in the market and they all have to be price takers. That is to say, none of them are large enough to affect the market price.There are no barriers to entry or exit.Buyers and sellers have perfect information of prices such that there are no asymmetric information in the market. All firms produce a homogeneous product
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What is a negative externality and how can it be corrected?
Using a diagram and an example, explain what a negative externality is and why it leads to market failure.