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Perfect Competition

Perfect Competition. In this lesson, students will identify characteristics of perfectly competitive markets. Students will be able to identify and/or define the following terms: Perfect Competition Barriers to Entry Standardized Products. A market is any venue where

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Perfect Competition

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  1. Perfect Competition In this lesson, students will identify characteristics of perfectly competitive markets. Students will be able to identify and/or define the following terms: Perfect Competition Barriers to Entry Standardized Products E. Napp

  2. A market is any venue where buyers and sellers meet. E. Napp

  3. In a perfectly competitive market, a large number of firms produce the same product. E. Napp/Helf

  4. Perfect Competition FIVE CONDITIONS FOR PERFECT COMPETITION: • THERE ARE MANY BUYERS AND SELLERS. • STANDARDIZED PRODUCTS (SUBSTITUTES) • PRODUCERS ABLE TO ENTER AND EXIT THE MARKET FREELY. • INDEPENDENT BUYERS AND SELLERS • BUYERS AND SELLERS ARE WELL-INFORMED ABOUT THEIR PRODUCTS. Helf

  5. Perfect Competition FIVE CONDITIONS FOR PERFECT COMPETITION: • THERE ARE MANY BUYERS AND SELLERS. • STANDARDIZED PRODUCTS (SUBSTITUTES) • PRODUCERS ABLE TO ENTER AND EXIT THE MARKET FREELY. • INDEPENDENT BUYERS AND SELLERS • BUYERS AND SELLERS ARE WELL-INFORMED ABOUT THEIR PRODUCTS. Helf

  6. Perfect Competition FIVE CONDITIONS FOR PERFECT COMPETITION: • THERE ARE MANY BUYERS AND SELLERS. • STANDARDIZED PRODUCTS (SUBSTITUTES) • PRODUCERS ABLE TO ENTER AND EXIT THE MARKET FREELY. • INDEPENDENT BUYERS AND SELLERS • BUYERS AND SELLERS ARE WELL-INFORMED ABOUT THEIR PRODUCTS. Helf

  7. Perfect Competition FIVE CONDITIONS FOR PERFECT COMPETITION: • THERE ARE MANY BUYERS AND SELLERS. • STANDARDIZED PRODUCTS (SUBSTITUTES) • PRODUCERS ABLE TO ENTER AND EXIT THE MARKET FREELY. • INDEPENDENT BUYERS AND SELLERS • BUYERS AND SELLERS ARE WELL-INFORMED ABOUT THEIR PRODUCTS. Helf

  8. Perfect Competition FIVE CONDITIONS FOR PERFECT COMPETITION: • THERE ARE MANY BUYERS AND SELLERS. • STANDARDIZED PRODUCTS (SUBSTITUTES) • PRODUCERS ABLE TO ENTER AND EXIT THE MARKET FREELY. • INDEPENDENT BUYERS AND SELLERS • BUYERS AND SELLERS ARE WELL-INFORMED ABOUT THEIR PRODUCTS. Helf

  9. Markets for fruits and vegetables are usually perfectly competitive markets. E. Napp

  10. Milk is milk. It is exactly the same regardless of who sells it. E. Napp

  11. Perfect Competition: No Barriers to Entry • A BARRIER TO ENTRY IS ANY CONDITION THAT MAKES IT DIFFICULT TO ENTER A MARKET. • High start-up costs are barriers to entry. (CAPITAL) • A great degree of technical knowledge can also be a barrier to entry. (SPECIALIZED LABOR) E. Napp

  12. Growing corn doesn’t require specialized knowledge. Growing WELL: Yes. E. Napp

  13. If opening a new business requires hundreds of thousands of dollars, that high start-up cost is a barrier to entry. E. Napp

  14. Needing specialized knowledge is another example of a barrier to entry. E. Napp/Helf

  15. Few markets are perfectly competitive. PRODUCTS MUST BE IDENTICAL IN A PERFECTLY COMPETITIVE MARKET. E. Napp

  16. Opening a commercial airline industry requires a tremendous amount of capital and people with special skills (pilots). E. Napp

  17. Exit Slip: • Identify a product or service NOT mentioned in the slides that represents a perfect competition • List at least 5 requirements you would need to produce that good or service (Land, Labor, Capital: raw materials, skills, equipment.) Helf

  18. Questions for Reflection: • List the four conditions of perfect competition. • Define commodity and provide an example of a commodity. • What is a barrier to entry? • Provide two examples of barriers to entry and explain why they are barriers to entry. • Why are few markets perfectly competitive? E. Napp

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