Chapter 5: Perfect Competition Flashcards
A market structure determines the
Competition
Or
Power
What are the characteristics to examine for market structures?
Number of firms in the market
Relative size of firm in market
The type of products
Extent of free entry and exit of firms
What are the market structures?
Perfect competition
Monopolistic competition
Oligopoly
Monopoly
What are the characteristics of perfect competition?
Large no. of firms and customers Small share of the market Each firm sells homogenous goods Perfect information in the market Free entry and exit of firms from industry in long run
When each firm only has a small share of the market? What is the implication?
Firms become price takers
Buyers and firms do not have influence over price
What does it mean when firms sell homogenous goods?
They are identical, and perfect substitutes for each other
Do not care which firm they buy from
When there is perfect information in the market?
Producers are aware of prices, costs and market opportunities
Consumers are aware of price, quality and availability of product
Since consumers are aware of prices,
The demand curve is perfectly elastic
It is horizontal
What is closest to a perfect competition market structure?
Stock exchange
What is the price set by in perfect competition?
Market equilibrium price
What are the unrealistic market structures?
Perfect competition
Monopoly