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What is a key characteristic of a market in economics?
What is a key characteristic of a market in economics?
In perfect competition, individual buyers and sellers have control over the market price.
In perfect competition, individual buyers and sellers have control over the market price.
False
What type of product is sold under conditions of perfect competition?
What type of product is sold under conditions of perfect competition?
Homogeneous product
In perfect competition, individual firms are considered ______ because they must sell at market price.
In perfect competition, individual firms are considered ______ because they must sell at market price.
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Match the concepts with their definitions related to perfect competition:
Match the concepts with their definitions related to perfect competition:
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What characterizes the demand curve for a firm under perfect competition?
What characterizes the demand curve for a firm under perfect competition?
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A firm in perfect competition can set its own price without affecting the market.
A firm in perfect competition can set its own price without affecting the market.
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What is the significance of perfect knowledge in a perfectly competitive market?
What is the significance of perfect knowledge in a perfectly competitive market?
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In perfect competition, a firm faces a perfectly elastic demand curve, which can be denoted as $E_d = _____.$
In perfect competition, a firm faces a perfectly elastic demand curve, which can be denoted as $E_d = _____.$
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Match the characteristics of perfect competition with their descriptions:
Match the characteristics of perfect competition with their descriptions:
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Why do firms in perfect competition avoid setting prices higher than the market price?
Why do firms in perfect competition avoid setting prices higher than the market price?
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Factors of production are perfectly mobile under perfect competition.
Factors of production are perfectly mobile under perfect competition.
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Explain the term 'unnecessary loss due to lower price fixation' in perfect competition.
Explain the term 'unnecessary loss due to lower price fixation' in perfect competition.
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What shape indicates a perfectly elastic demand curve?
What shape indicates a perfectly elastic demand curve?
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A perfectly competitive firm can control the price of its product.
A perfectly competitive firm can control the price of its product.
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What happens to market supply when firms earn extra-normal profits?
What happens to market supply when firms earn extra-normal profits?
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In a perfectly competitive market, a firm's demand curve is perfectly elastic, which means that the firm can sell any amount of its output at the prevailing __________.
In a perfectly competitive market, a firm's demand curve is perfectly elastic, which means that the firm can sell any amount of its output at the prevailing __________.
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Match the following scenarios with their outcomes in perfect competition:
Match the following scenarios with their outcomes in perfect competition:
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Under perfect competition, what is the long-term profit situation for firms?
Under perfect competition, what is the long-term profit situation for firms?
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The price remains the same regardless of whether quantity demanded is OA or OB.
The price remains the same regardless of whether quantity demanded is OA or OB.
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Study Notes
Forms of Market: Perfect Competition
- Perfect competition exists when there are many buyers and sellers of a homogeneous product.
- No single buyer or seller can influence the market price.
- Pricing is determined by market supply and demand.
Concept of Market
- In economics, a market is not a physical place, but rather a system that connects buyers and sellers.
- It facilitates the exchange of goods and services.
- This system can include online communication or other arrangements.
Concept of Perfect Competition
- A large number of sellers and buyers participate in the market.
- Sellers offer identical products (homogenous).
- Buyers and sellers have no control over the market price.
Features of Perfect Competition
- Large Number of Firms/Sellers: Many firms are present, with each firm's output being insignificant relative to the total market supply. This makes one firm unable to affect the market price.
- Large Number of Buyers: Many buyers exist, making each individual buyer's demand insignificant to influence the market price.
- Homogenous Product: All firms sell identical products. This eliminates consumer preference for one firm's product over another.
- Perfect Knowledge: Buyers and sellers have complete information about the market price and availability of products.
- Free Entry and Exit: Firms can enter or exit the market freely without any restrictions.
- Independent Decision-Making: Firms operate independently, without agreements regarding production quantities or prices.
- Perfect Mobility of Resources/Factors: Factors of production (labor, land, capital) move freely between industries seeking the highest return.
- No Extra Transport Costs: There are no variations in purchasing costs for consumers depending on their location within the market.
Firm in Perfect Competition
- Price Taker: A firm in perfect competition must accept the market price; it cannot influence it.
- Perfectly Elastic Demand: The demand curve for an individual firm is perfectly horizontal indicating any price outside the market price will cause zero sales.
Normal Profits in the Long Run
- In the long run, extra-normal profits (profits above normal) attract new firms into the market
- This increase in supply leads to falling prices and eliminates extra-normal profits
- Losses cause firms to leave, leading to higher prices and eliminating losses.
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Description
This quiz covers the concept of perfect competition in economics, focusing on its features, the role of buyers and sellers, and how prices are determined within the market. Test your understanding of how perfect competition operates and its characteristics compared to other market forms.
