notes on chapter 9

notes on chapter 9 - Chapter 9 Perfect Competition and the...

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Chapter 9: Perfect Competition and the Supply Curve Perfect Competition In perfect competition there are so may competitors it does not matter if one group knows who the other is To put it more simply Price taking producers are those producers whose actions do not affect the market price of the good they are selling, as a result price-taking producers consider the market price to be a given. When every producer is a price taker the market iis considered to be in perfect competition The same goes for consumers. Price-taking consumers are consumers who cannot influence the market price of a good by his or her actions. Defining Perfect Competition In perfectly competitive market, all participants both consumers and producers are price takers. The supply and demand model we have benn using is a model of a perfectly competitive market A perfectly competitive industry is an industry where all producers are price takers. Two Necessary Conditions for Perfect Competition An industry that is perfectly competitive must contain many producers none of whom have a large market share which is the fraction of the total industry output represented by that producers output Secondly an industry that is perfectly competitive has every consumer regarding the products of all the producers equal. A standardized product or commodity is a good that is regarded as equal to other goods of the same type produced by a variety of producers Commodities prevent producers from increasing costs on thir product without losing all sales to other producers of the same good. It is when consumers consider the same product from different producers perfect substitutes for each other Free Entry and Exit Most perfectly competitive industries are characterized by free entry and exit, which states that there are no obstacles to new producers entering the industry and producers to leaving the industry However free entry and exit is not essential to have a perfectly competitive industry
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