Perfect Competition Flashcards
1
Q
Advantages
A
- PC=MC, production at AC
- only normal profits made in LR
- Consumer sovereignty
- Competition efficacy
2
Q
Disadvantages
A
- insufficient profits for investment
- scariness of product diversity
- absence of comp over product design and specification.
3
Q
What do Neo-economists argue
A
- PC would produce best possible outcome for consumers and society.
- no need for gov ref expect to make markets more competivte
- no externalities / no external cost / benefits to third parties not involved in transaction
4
Q
Example of market
A
- firms within PC - can sell as much as they like at any given price meaning P = MR = MC
- example is carrot and cabbage
5
Q
TR=TC
A
Total cost include = rent, wages, interest and normal profit means enterpenour cover opportunity cost.
6
Q
What happens in SR and LR in PC
A
- SR- abnormal profits / loses be made
- LR- normal profits be made due to exit /entry of diff firms
- LR- firms are alloctively and productively efficient.
- equation P=MR=MC=AC represents that curve is in fact supply curve.
7
Q
What’s the enter and exit of firms more likely happen
A
- increase of firms into industry in SR unlikely - little time to enter.
- LR- field will enter industry
- existing companies gain supernormal profits
8
Q
What is the quaintly of buyers and sellers
A
- large quaintly of buyers and sellers
- freedom of entry and exit ( means depart and exit easy )
- single firms won’t increase price
- same goes for lowering price as goods will still sell at market price
- example - peas - no point selling peas higher price as wont sell any.
9
Q
Is PC a price taker
A
- Price taker as horizontal de and curve at market price
- perfect knowledge of market at both consumers and producers know prices whereas producers will know costs as well as market opportunities available.
- despite conditions firms probs not meet.
10
Q
Finically industry ; example of PC
A
- foreign exchange side of things.
- currency is homogeneous- goods traded within market remain same no matter what
- people have access to traders to be realisable info
- brexit £ dropped against €
- day of brexit £1 = 1.2900 now around £1 = 1.09 roughly 15% decrease
- companies introduce cash passport /travel money cards to ensure the return of company return.