Which of the following best describes pure competition in a market?

• A. A market with differentiated products and significant barriers to entry.
• B. A market with many buyers and sellers, identical products, and easy entry and exit.
• C. A market dominated by a single seller with significant control over price.
• D. A market where firms collude to set prices and restrict output.

Answer: (B)

Verified step by step guidance

1. Understand the concept of pure competition (also known as perfect competition) in microeconomics. It is a market structure characterized by several key features.
2. Identify the characteristics of pure competition: many buyers and sellers, identical (homogeneous) products, and free entry and exit from the market without significant barriers.
3. Compare each option given in the problem to these characteristics. For example, a market with differentiated products and significant barriers to entry does not fit pure competition because products are not identical and entry is restricted.
4. Recognize that a market dominated by a single seller with significant control over price describes a monopoly, not pure competition.
5. Note that a market where firms collude to set prices and restrict output describes an oligopoly with collusion, which is also not pure competition.