Which of the following is an example of a market that closely resembles perfect competition?

• A. The wheat farming industry
• B. The local electricity utility
• C. The automobile manufacturing industry
• D. The smartphone market

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the characteristics of a perfectly competitive market. These include many buyers and sellers, homogeneous products, free entry and exit, perfect information, and no single buyer or seller can influence the market price.
2. Step 2: Analyze the wheat farming industry. It typically has many farmers (sellers), produces a homogeneous product (wheat), and farmers are price takers because no single farmer can influence the market price. Entry and exit are relatively free.
3. Step 3: Compare this with the local electricity utility, which is usually a monopoly or a regulated market with a single or few sellers, not fitting perfect competition.
4. Step 4: Consider the automobile manufacturing industry and the smartphone market. Both have few large firms, differentiated products, and significant barriers to entry, which do not align with perfect competition.
5. Step 5: Conclude that the wheat farming industry best fits the model of perfect competition among the options given.