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Date : March 30, 2011 Topic : Perfect Competition Aim : Why is perfect competition beneficial to a free market society? Do Now : Handout. LOOK AT THE PAPER!. BE THE PAPER!. Market Structure:. Perfect/Pure Competition-

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slide1

Date: March 30, 2011Topic: Perfect CompetitionAim: Why is perfect competition beneficial to a free market society?Do Now: Handout

look at the paper
LOOK AT THE PAPER!
  • BE THE PAPER!
slide3

Market Structure:

Perfect/Pure Competition-

  • Large number of firms all producing essentially the same product at the same price.
  • Assumes that the Market is in Equilibrium.
  • Producers make decisions on how much to produce (given their production costs & the market price)
slide4

4 Conditions for Perfect Competition

  • Many buyers and sellers participate in the market.
  • Sellers offer identical products.
  • Buyers sellers are well informed about products.
  • Sellers are able to enter and exit the market freely.
slide5

Example

Farms

slide6

Many Buyers

and Sellers

  • Perfectly competitive markets: require many participants on both the buying and selling sides.
  • NO individual can be powerful enough to buy or sell enough goods to influence the total market quantity or the market price.
slide7

Identical Product

  • No difference between the products sold by different suppliers.
  • A product that is considered the same regardless of who makes or sells it.
  • Always choose the lowest price.

Examples: Low-end gasoline, milk, notebook paper, sugar.

Commodity:

slide8

Informed Buyers and Sellers

  • Know enough about the market to find the best deal they can get.
  • The Market provides the buyer with full information about the features of the product and its price.
slide9

Free Market Entry and Exit

  • Firms must be able to enter markets when they can make money, leave when they can’t earn enough to stay in business
  • Markets with more firms/more competition= lower prices
slide10

Barriers to Entry

  • Factors that make it difficult

for new firms to enter a market

  • Barriers to entry can lead to

Imperfect competition

  • Common barriers: 1) Start-up Cost

2) Technology

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A.) Start-up Costs

  • Entrepreneurs need to invest money in a new firm before earning income.
  • The expenses that a new business must pay before the first product reaches the costumers- Start up Costs.
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B. Technology

  • New Entrepreneurs cannot easily enter markets without a lot of technological preparation and study.
  • Barriers of technology and know-how can keep a market from becoming perfectly competitive.
slide15

Summary:

To what extent is competition beneficial to a Free-Market economy?