Notes from Chapter 9 from the book
A market is said to operate under perfect competition when the following 4 things are
satisfied
•
numerous small firms and customers. competitive markets contain so many
buyers and sellers that each player’s decision have no effect on price. this
requirement rules out trade associations and such that try to affect price.
•
Homogeneity of product. every seller offers an identical product. Because of this,
people don’t care which seller they buy from, they just buy.
•
Freedom of entry and exit – there are no hoops to jump through to enter the
market, or leave the market.
•
perfect information – everyone is well informed about what is available and at
what price. They also know who is trying to sell/buy at a lower price
under perfect competition, a firm has no choice but to accept the price that has been
determined in the market. it is therefore called a price taker (rather than a price maker).
a perfectly competitive firm faces a horizontal demand curve. this means that it can sell
as much has it wants at the prevailing market price. it can double or triple its sales
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- Spring '08
- Dalstead
- Economics, Microeconomics, Perfect Competition, shut down
-
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