ACCA Performance Management (F5) Certification Practice Exam

What is an important characteristic of a perfectly competitive market regarding information?

1. Information is imperfect

2. Perfect information about products is available

3. Information is only available to sellers

4. Buyers have limited access to information

The correct answer is: Perfect information about products is available

In a perfectly competitive market, one of the key assumptions is that all participants have access to perfect information regarding the products being sold. This means that both buyers and sellers are fully informed about all aspects of the market, including prices, quality, and available alternatives. Perfect information ensures that consumers can make informed decisions, fostering competition among sellers to provide the best possible prices and quality of goods. The presence of perfect information eliminates information asymmetry, where one party has more or better information than the other. In such a market, consumers are aware of the prices charged by all competitors and can easily switch suppliers, pushing prices to their equilibrium level. This characteristic is fundamental to the functioning of a perfectly competitive market and contributes to the efficiency of resource allocation. In contrast, other scenarios imply variations in information availability, such as imperfect information, asymmetry, or limited access, which are not characteristics of a perfectly competitive market. Such conditions would lead to market inefficiencies and hinder the optimal allocation of resources.