Microeconomics - L9 Perfect Competition Market Flashcards
What is a market?
A place where buyers and sellers of a good or service come together to exchange a good or service.
What are the 4 features of a perfectly competitive market?
- Many buyers and sellers (high competition)
- Products are homogenous
(identical / substitutable) - Ease of entry and exit to the market (low barriers)
- Buyers and sellers are price takers
Provide 3 examples of homogenous products
Strawberries
Bananas
Bottled water
Define ‘efficient allocation of resources’
EAR occurs when an economy is maximising its output from its inputs and maximising the nations living standards.
Why are businesses more likely to use resources more efficiently in a perfectly competitive market?
Because businesses aim to maximise profit. Therefore, they need to sell their products at the lowest possible price in order to remain competitive. As a result, they need to maximise their output from any given level of inputs = ie. Ensure that resources are allocated efficiently.
What impact does a PCM have on prices?
Prices will remain as low as possible because businesses need to remain competitive in order to make a profit. As there are many buyers and sellers in a PCM, competition is high. Therefore, businesses must ensure their prices remain low in order to be competitive.
What impact does a PCM have on living standards?
Living standards will be maximised. This is because in order to make a profit, businesses need to produce the good or service being demanded by consumers at a low price. Lower prices results in increased access to goods and services (material living standards) because goods and services remain affordable.
