Difference between revisions of "Perfect competition"
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| − | '''Perfect competition''' is an economic term referring to the condition | + | '''Perfect competition''' is an economic term referring to the condition when there is so much competition between vendors that a [[seller]] would lose customers if he raised prices at all. Firms that are in a perfectly competitive market are thus referred to as "Price takers". In essence, a perfectly competitive market structure has no market power. Such a market is good from the [[consumer]]'s perspective. A perfectly competitive market must: |
| + | |||
| + | *Have products which are perfect [[substitute]]s for each other. | ||
| + | *Have many companies in the market. | ||
| + | *All the companies must have identical costs for their supplies. | ||
| + | *The consumers must be fully informed about the products. | ||
| + | *Free entry and exit (No barriers to entry) - it is relatively cheap for both new firms to enter the industry and for old firms to leave. | ||
The [[market]] for [[dairy]] products is close to perfect competition. | The [[market]] for [[dairy]] products is close to perfect competition. | ||
| − | [[ | + | [[Category:Economics]] |
Latest revision as of 14:14, July 12, 2016
Perfect competition is an economic term referring to the condition when there is so much competition between vendors that a seller would lose customers if he raised prices at all. Firms that are in a perfectly competitive market are thus referred to as "Price takers". In essence, a perfectly competitive market structure has no market power. Such a market is good from the consumer's perspective. A perfectly competitive market must:
- Have products which are perfect substitutes for each other.
- Have many companies in the market.
- All the companies must have identical costs for their supplies.
- The consumers must be fully informed about the products.
- Free entry and exit (No barriers to entry) - it is relatively cheap for both new firms to enter the industry and for old firms to leave.
The market for dairy products is close to perfect competition.