4.1 Perfect Competition Flashcards
What is perfect competition ?
A form of market structure with many buyers and sellers that can achieve allocative and productive efficiency in long-run equilibrium
What are the key characteristics of perfect competition ?
Many buyers - no single buyer has control over the market
Many sellers - no single seller has dominance
Price takers - firms must take the market price set by supply and demand because one firm cannot affect the market price
There are many buyers and sellers in the market, none of which is large enough to influence price the firm is a price taker
The product is homogeneous - no perceived difference between different products on the market
There are no barriers to entry to or exit from the market
There is perfect knowledge of market conditions - they have knowledge of the actions and prices of other firms in the market
What is short run perfect competition ?
Market structure that has allocative efficiency but not productive efficiency
What is Long run perfect competition ?
Market structure that has allocative efficiency AND productive efficiency
How can market structures be measured under perfect competition ?
They can be measured in terms of their allocative and productive efficiency
PE means operating at the lowest average cost
AE is concerned with the optimal distribution of cost
Can you draw a short run and long run perfect competition diagram ?
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