3.3.9 perfect competition Flashcards
1
Q
A perfectly competitive market has the following characteristics:
A
- Homogenous products (all perfect subsitutes)
- all firms have access to FoPs
- large number of buyers and sellers
- free entry and exit to the market
- perfect elesaticity from the demand curve
- perfect knowledge/information
- profti maximisation is assumed as a key objective
2
Q
many buyers and sellers (infinate)
A
leads to intense and extreme competition
3
Q
Homogeneous goods and services
A
- firms are price takers meaning they have no ability to set their own prices
- they habe to charge the smae price as all other firms in the market
- if they try to raise their price above market demand, they will loose all their customers
4
Q
no barriers to entry or exit
A
firms can leave or enter the market freely without any costs
5
Q
perfect information
A
consumers: know about prices and qualitly in the market
producers: know abour prices, technology and costs in the market
6
Q
firms are profit maximisers
A
firms will produce where MC=MR
7
Q
long run equalibrium in perfect competition
A
when normal profit is being made
8
Q
evaluation of the model
A
- its rare for entry and exit in a market to be costless
- most firms have some amount of over price setting power
- with highly complex products there are always information gaps facing the consumer
