5 Questions
What is a perfect market in economics?
A perfect market in economics is defined by several idealizing conditions, collectively called perfect competition, or atomistic competition.
What conditions characterize perfect competition in economics?
Idealizing conditions, collectively called perfect competition, or atomistic competition, characterize perfect competition in economics.
What is the equilibrium condition in a perfect market?
The equilibrium condition in a perfect market is when the quantity supplied for every product or service, including labor, equals the quantity demanded at the current price.
What efficiencies does perfect competition provide?
Perfect competition provides both allocative efficiency and productive efficiency.
What does a factor's price equal in perfect competition?
In perfect competition, a factor's price equals the factor's marginal revenue product.
Study Notes
Perfect Market
- A perfect market, also known as an atomistic market, is defined by several idealizing conditions collectively called perfect competition or atomistic competition.
Conditions of Perfect Competition
- Theoretical models demonstrate that a market will reach an equilibrium in which the quantity supplied equals the quantity demanded at the current price.
- This equilibrium is a Pareto optimum.
Efficiency
- Perfect competition provides both allocative efficiency and productive efficiency.
- Allocative efficiency: output occurs where marginal cost is equal to average revenue (price) (MC = AR).
- Productive efficiency: any profit-maximizing producer faces a market price equal to its marginal cost (P = MC).
Factor Pricing
- A factor's price equals the factor's marginal revenue product.
Supply Curve
- The supply curve can be derived based on the conditions of perfect competition.
Test your knowledge of perfect competition and general equilibrium theory in economics with this quiz. Explore the ideal conditions and concepts of perfect markets and how they contribute to market equilibrium.
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