Perfect Competition

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Perfect Competition

• Chapter 7 Section 1

2
Indiana Academic Standards for Economics

• Standard 3.4
• Identify the basic characteristics of the four
  market structures perfect competition, monopoly,
  oligopoly, and monopolistic competition.

3
Question

• What are the first 3 words that come to mind
  when you hear the word
• COMPETITION?

4
Objectives

• What are the characteristics of perfect
  competition?
• What are some examples of perfect competitive
  markets?
• What does it mean to say that a firm has no
  control over price?

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Markets
1
2
3
4
Name
A. Buyers Sellers
B. Type of Good
C. Enter Exit
Example
6

• Price Taker
• A seller that can sell all its output at the
  equilibrium price only.
• Example...
• Wheat

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Price Control?

• Can sellers sell their goods at any price they
  desire?
• Economically,

NO!
Only at the market price equilibrium
They cannot sell for more than equilibrium. They
will not sell for less than equilibrium.
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Characteristics of Perfect Competition

• 1. There are MANY buyers sellers
• 2. All firms sell IDENTICAL goods
• 3. There is EASY entry to exit from the
  market
• Buyers sellers have full information

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PERFECTLY COMPETITIVE

• EXAMPLES
• Agricultural Goods (Wheat, Corn,.)
• Stock Market

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2 Questions Every Firm Structure Must Answer

• How much product should we produce?
• What price should we charge?

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Profit signals an Entrance into MarketProgression

• Profits Exist
• New Firms Enter the Market
• Supply Increases
• Price Falls
• Price falls until there is no longer an incentive
  for firms to enter the market

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Assessment

• What are the characteristics of perfect
  competition?
• What are some examples of perfect competitive
  markets?
• What does it mean to say that a firm has no
  control over price?