3.1.4.3 competitive markets Flashcards
what is a competitive market
one where there are numerous producers that compete with one another in hopes to provide goods and services we, as consumers, want and need.
what is a perfect competiton market
a market in which there are a large number of firms all selling the identical product
why is a perfect competiton market theoretical
-there will frequently be some barriers to entry
-some firms will always have the ability to control the price
-some markets wont provide all information to customers
what are the characteristics of perfect competition
-homogenised products
-no barriers to entry
-lots of buyers and sellers
-normal profits
-consumers have full info available to them
-no firm dominates price control
what is a price taker
a firm in perfect competition that cannot influence the price,
what is free entry and exit
Free entry and exit refers to the ability of firms to enter a market without having to face costs associated with entering the market or leaving it.
why will prices in a competitive market be lower than that of a monopoly
there is more competiton which leads to forced lowering of the market price, and therefore a reduction in profit
what is the invisible hand
its a theory in which an ‘invisible hand’ pushes customers towards the cheapest option
what sort of profit will a perfect competiton firm experience in the shortrun
supernormal profit
