A2 Unit 2 – Perfect Competition

With the mock exams approaching for southern hemisphere students here is another of Phil Holden’s revision presentations. This one is on Perfect Competition. Remember the following characteristics:

• All units of the commodity are homogeneous (i.e. one unit is exactly like another). If this condition exists, buyers will have no preference for the goods of any particular seller.

• There must be many buyers and sellers so that the behaviour of any one buyer, or any one seller, has no influence on the market price. Each individual buyer comprises such a small part of total demand and each seller is responsible for such a small part of total supply that any change in their plans will have no influence on the market price.

• Buyers are assumed to have perfect knowledge of market conditions; they know what prices are being asked for the commodity in every part of the market. Equally sellers are fully aware of the activities of buyer and sellers.

• There must be no barriers to the movement of buyers from one seller to another. Since all units of the commodity are identical, buyers will always approach the seller quoting the lowest price.

• Finally, it is assumed that there are no restrictions on the entry of firms into the market or on their exit from it.

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