Topic 8, 9 and 10 - Market Structures Flashcards
(3 cards)
What are the characteristics of a perfectly competitive market? (4)
1) Free entry and exit in the market
2) Large number of buyers and sellers
3) Homogenous products
4) Perfect knowledge
What is a ‘price taker’? What does the demand curve look like for a price taking firm?
Price taker is a firm that cannot influence the good or service that it produces
• Firms in a perfectly competitive market are price takers
• The demand curve for a price taker is horizontal, or perfectly elastic.
Explain how “homogenous products” is a characteristic of a perfectly competitive market?
When the goods are homogenous, one good produced by one firm is identical to the bushel produced by another firm. Therefore, these goods are easily substitutable and there is no brand loyalty.
