Unit 3: Perfect Competition Flashcards
What is the Level of competition in a prefect competition?
High
What are the types of goods which are produced in a perfect competition?
Homogenous
Are they price takers or price makers in a perfect competition?
Price Takers
What barriers to entry/exit are there in a perfect competition?
No barriers
What knowledge of prices do firms have?
Perfect knowledge
How many buyers + sellers are there in a perfect competition?
Many buyers and sellers, (none of whom is large enough to influence price)
What do firms in a perfect competition make in the short run?
Abnormal profit, or a Loss
What do firms make in the long run of a perfect competition?
Normal Profit
How do firms change from the short run to long run in a perfect competition?
Abnormal Profit: Gives an incentive to join the market, which increases supply.
Loss: Gives incentive to leave the market, reducing supply.
What are some examples of markets running in perfect competition?
Foreign Exchange Market
Market Stalls
What type of demand do firms in a perfect competition have?
Perfectly elastic
What does a diagram for a perfect competition look like?
Individual Firm: Elastic demand curve
Whole Market: Supply + Demand Curve, where the equilibrium is at the same price as the individual firm
What does the supply curve look like in a Perfect Competition?
In a perfectly competitive market, the supply curve for a firm is the marginal
cost curve above the average variable cost in the short run, and the average total cost in the long run.
