Assumptions of Perfect Competition

Question 1

Assumptions of a Perfect Competition

Answer 1

1. strong competition between buyers and sellers in the market exists
2. firms are price takers (not makers) and have significant market power
3. product differentiation and brand names do not exist
4. large level of consumer sovereignty that guides how resources are allocated
5. buyers and sellers have complete information about the product and market (perfect knowledge)
6. there is ease of entry and exit by producers in the market
7. sellers and owners of resources are profit-maximising