Article
Perfect competition
Prefect competition is a market in which there are many firms selling identical products with no firm large enough, relative to the entire market, to be able to influence market price
A perfectly competitive market is a hypothetical market where competition is at its greatest possible level. Neo-classical economists argued that perfect competition would produce the best possible outcomes for consumers, and society. perfect competition describes markets such that no participants are large enough to have the market power to set the price of a homogeneous product. Because the conditions for perfect competition are strict, there are few if any perfectly competitive markets. Still, buyers and sellers in some auction-type markets, say for commodities or some financial assets, may approximate the concept. Perfect competition serves as a benchmark against which to measure real-life and imperfectly competitive markets.
Key characteristics
Perfectly competitive markets exhibit the following characteristics:
1. There is perfect knowledge, with no information failure or time lags. Knowledge is freely available to all participants, which means that risk-taking is minimal and the role of the entrepreneur is limited.
2. There are no barriers to entry into or exit out of the market.
3. Firms produce homogeneous, identical, units of output that are not branded.
4. Each unit of input, such as units of labour, are also homogeneous.
5. No single firm can influence the market price, or market conditions. The single firm is said to be a price taker, taking its price from the whole industry.
6. There are a very large numbers of firms in the market.
7. There is no need for government regulation, except to make markets more competitive.
8. There are assumed to be no externalities, that is no external costs or benefits.
9. Firms can only make normal profits in the long run, but they can make abnormal profits in the short run.
Explanation of the
Prefect competition is a market in which there are many firms selling identical products with no firm large enough, relative to the entire market, to be able to influence market price
A perfectly competitive market is a hypothetical market where competition is at its greatest possible level. Neo-classical economists argued that perfect competition would produce the best possible outcomes for consumers, and society. perfect competition describes markets such that no participants are large enough to have the market power to set the price of a homogeneous product. Because the conditions for perfect competition are strict, there are few if any perfectly competitive markets. Still, buyers and sellers in some auction-type markets, say for commodities or some financial assets, may approximate the concept. Perfect competition serves as a benchmark against which to measure real-life and imperfectly competitive markets.
Key characteristics
Perfectly competitive markets exhibit the following characteristics:
1. There is perfect knowledge, with no information failure or time lags. Knowledge is freely available to all participants, which means that risk-taking is minimal and the role of the entrepreneur is limited.
2. There are no barriers to entry into or exit out of the market.
3. Firms produce homogeneous, identical, units of output that are not branded.
4. Each unit of input, such as units of labour, are also homogeneous.
5. No single firm can influence the market price, or market conditions. The single firm is said to be a price taker, taking its price from the whole industry.
6. There are a very large numbers of firms in the market.
7. There is no need for government regulation, except to make markets more competitive.
8. There are assumed to be no externalities, that is no external costs or benefits.
9. Firms can only make normal profits in the long run, but they can make abnormal profits in the short run.
Explanation of the