3.4.2- Perfect Competition

Question 1

What are the characteristics of perfect competition?

Answer 1

-many buyers and sellers
-price taker
-homogenous product
-no barriers to entry or exit
-independent decision making
-perfect information

Question 2

What is an example of something that is close to perfect competition?

Answer 2

The London Stock Exchange

Question 3

Why is no SNP made in the long run in perfect competition?

Answer 3

Firms find out about the SNP so switch to that market as they aren’t making normal profit, so supply increases and price falls to P=CPU

Question 4

How efficient is perfect competition in the short run?

Answer 4

Allocatively efficient only

Question 5

How efficient is perfect competition in the long run?

Answer 5

Both allocatively and productively efficient

Question 6

Why isn’t perfect competition dynamically efficient?

Answer 6

No SNP is being made to invest, and there is perfect information so one firm’s invention will be adopted by another so there is no competitive benefit

Question 7

What is dynamic efficiency?

Answer 7

Improvements in static efficiency over time

Question 8

What is static efficiency?

Answer 8

Efficiency at a point in time