![]() ![]() ![]() When a wheat grower, as we discussed in the Bring It Home feature, wants to know the going price of wheat, he or she has to check on the computer or listen to the radio. If a firm in a perfectly competitive market raises the price of its product by so much as a penny, it will lose all of its sales to competitors. Figure 7.2: The Market Structures on a Spectrum 7.2 An Introduction to perfect competitionįrom: Openstax: Principles of Microeconomics (Chapter 8.1)įirms are in perfect competition when the following conditions occur: (1) many firms produce identical products (2) many buyers are available to buy the product, and many sellers are available to sell the product (3) sellers and buyers have all relevant information to make rational decisions about the product that they are buying and selling and (4) firms can enter and leave the market without any restrictions-in other words, there is free entry and exit into and out of the market.Ī perfectly competitive firm is known as a price taker, because the pressure of competing firms forces it to accept the prevailing equilibrium price in the market. The four market structures can be thought of as a spectrum like the one shown below. The following flowchart summarizes the markets: Figure 7.1: A Flowchart of the Market Structures
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