Perfect Competition Flashcards

1
Q

What is the primary characteristics

A

High competition

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2
Q

Example of perfect competition

A

Agriculture or Car wash

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3
Q

What are goods in perfect competition

A

Perfectly elastic as any change in price causes a huge change in demand

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4
Q

What are Firms in Perfect Competition

A

Price takers as they have no control over price

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5
Q

What are the four characteristics of Perfect Competition

A
  • Perfect Knowledge
  • Many buyers and sellers
  • Free entry and exit from the industry
  • Homogenous Goods
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6
Q

How is homogenous goods a characteristic of perfect competition

A

All the goods are identical so any price change has no effect so there are no price changes, no firm has a superior quality good that gets them more market share

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7
Q

How is perfect knowledge a characteristic of perfect competition

A

All producers have equal knowledge on production techniques and each others costs and prices, consumers also have perfect knowledge about the goods and their price

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8
Q

How is free entry and exit a characteristic of perfect competition

A

When the market is doing well firms will join as there are no barriers, this means that no firms will make long run supernormal profits, firms making a loss will also be able to leave immediately

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9
Q

How is Many buyers and sellers a characteristic of perfect competition

A

No firm or customer has any influence over the market as there are so many and they are all the same size

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10
Q

What position do firms in perfect competition hold

A

profit maximisation MC=MR

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11
Q

Why can supernormal profits never be made in the long run

A

Supernormal profits attract new firms as there a no barriers to entry so supernormal profits are competed away as firms undercut each other until all firms make normal profit

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12
Q

Which efficiencies does Perfect competition achieve

A

productive and allocative so static

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13
Q

What do perfect competition firms lack

A

economies of scale and dynamic efficiency

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14
Q

How can firms in perfect competition making a loss survive in the short run

A

short run loss minimisation where their selling price AR is above the AVC the cost to make the good as they are reducing their loss

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15
Q

What is the other name for x inefficiency

A

organisational slack

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16
Q

What are the ways firms in perfect competition will try to compete

A
  • Better quality service
  • better quality products
  • advertising
  • wider product range
17
Q

What do perfectly competitive markets promote

A

competition and efficiency

18
Q

Why do government increase competition

A
  • Firms are more efficient
  • Fairer price for consumers
  • Encourage Innovation
19
Q

What policies to governments use to increase competition

A
  • Start up subsidies for entrepreneurs
  • increase consumer knowledge
  • privatise and deregulate large monopolistic national industries
    -discourage mergers and takeovers
  • encourage international competition with trade liberalisation or integration