Perfect Competition

5 flashcards · Economics · by Addaneye

1. Four features of a perfectly competitive market

   Many small buyers and sellers No barriers to entry or exit Homogeneous goods Perfect information

2. Advantages of perfectly competitive markets for consumers

   Firms produce at the allocatively efficient point, which means that consumer surplus is maximised Firms produce cheap, high quality goods

3. Disadvantages of perfectly competitive markets for consumers

   Consumers may lose out over the quality of goods as firms cut corners to lower their costs of production

4. Advantages of perfectly competitive markets for firms

   Firms make supernormal profits in the short run Firms can achieve static efficiency in the long run

5. Disadvantages of perfectly competitive markets for firms

   Only make normal profits in the long run >> unable to achieve dynamic efficiency >> higher prices Firms cannot achieve economies of scale >> higher prices