Perfect Competition Flashcards
What is a perfectly competitive market
A market structure where there are numerous amounts of buyers and sellers with consumers having perfect knowledge about products
How many firms
A lot
Price setting power
Price Takers
N firm ratio
Extremely low
Products
Homogenous( identical) products
Contestability
Highly contestable
Barriers to entry
No barriers to entry and exit
Objectives
Profit maximisation
Efficiency
Static (productive and allocative) efficient in the Long run
Dynamic in short run
Regulation
no/low
Societal Impact
Good for society as no welfare loss
low prices
Examples
Bakery
Barbers
Assumptions in Long run
Supply increases
Price decreases Quantity increases
Normal Profit made
Static efficient( allocative and productive)
Assumptions in short run
Incentive to join Market due to SNP
Dynamically efficient
Profit maximisers
Benefits to consumers
Low prices
Perfect knowledge homogenous
High choice
Drawbacks to consumers
Homogenous so less variety
Less innovation of products
Benefits to producers
Low regulation
Short run SNP made
Low sunk costs
No barriers to entry
Static efficient
Drawbacks to producers
Price takers
High risk of shut point with decrease prices in long run
Lack on SNP
unable to profit maximise in long run
Benefits to Government
Jobs created
Static efficient means no WL means no regulation
Corporate Tax more Gov rev
Drawbacks to Government
Subsidies given to new firms
Overproduction of goods
