Eco 91 Perfect Competition Competition Good for consumers

Eco 9/1 Perfect Competition

Competition Good for consumers. *Provides choices *Competition leads to a surplus, and lower prices n

Market Structure Businesses are categorized by type of business and by market structuren Market structure- amount of competition a business faces. n

Four Types of Market Structure 1. 2. 3. 4. Perfect competition Monopolistic competition Oligopoly Monopoly

Perfect Competition n Perfect competition- when so many sellers of a product or service exist that they make up only a small part of the market.

Conditions of Perfect Competition Five conditions must be met for perfect competition to exist. 1. A large market 2. A similar product 3. Easy entry and exit into the market 4. Easily obtainable information 5. Independence- buyers & sellers don’t work together.

No Control Over Price When the 5 conditions are met, supply and demand control the price, not a single buyer or seller. n In perfect competition, supply and demand reach the equilibrium price. n Because so many sellers exist, one changing a price won’t affect market price. n

Information is Key n Few perfectly competitive industries exist but there is fierce competition. n Internet lets us find lowest prices.

Agriculture as Example Agricultural market is perfect competition. No control over wheat prices. Supply and demand find equilibrium price. Demand for wheat is inelastic. Supply depends on conditions out of farmers’ control. n

Wheat Market 1. 2. 3. 4. 5. Large market Similar product Easy entry and exit Easily obtained information Independence- thousands of wheat farmers won’t band together.

Benefits to Society n Intense competition forces prices down and leads to economic efficiency.