What Is Perfect Competition?
The model has many sellers, identical products, free entry and exit, and full information.
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In this lesson you learn to
- Describe the conditions of perfect competition
- Explain what a price taker is
- Work through the apple-stall example
- Explain zero economic profit and why the model is a yardstick
Check yourself: sample questions
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1.Which features belong to perfect competition in the textbook model? Select all that apply.
Several answers can be correct.
The model has many sellers, identical products, free entry and exit, and full information.
2.What is a price taker?
A single seller is too small to move the market price, so each seller is a price taker.
3.Worked example: 20 stalls sell the same apples at 2 per kilo, and each stall sells 100 kilos a day. What are the daily sales of one stall?
2 times 100 is 200 a day.
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Sources (4)
- OpenStax: Principles of Economics 3e (Greenlaw, Shapiro, MacDonald, 2022), Kap. 8.1 Perfect Competition and Why It Matters
- OpenStax: Principles of Economics 3e, Kap. 8.3 Entry and Exit Decisions in the Long Run
- OpenStax: Principles of Economics 3e, Kap. 7.1 Explicit and Implicit Costs, and Accounting and Economic Profit
- Eigene Berechnung (Modellmarkt)
Education only. Not financial advice.