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Economics explained


Market structures

Perfect competition

Perfect competition

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Perfect competition has the following characteristics:

A perfectly competitive market has many firms producing the same (ie homogeneous) goods or services.

Under perfect competition producers and consumers have all the information they require – they have 'perfect knowledge' of the market.

There is complete freedom of entry into and exit from the market.

The price and level of output under perfect competition tends towards the equilibrium point. Producers attempting to sell at a higher price will not sell anything, and producers attempting to sell as a price below equilibrium would obtain 100% market share.

The demand 'curve' is horizontal – it is 'perfectly elastic'.

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