5 Questions
Define perfect competition in economics.
Perfect competition is defined by several idealizing conditions, collectively called perfect competition, or atomistic competition, in which a market is characterized by a large number of small firms, identical products, freedom of entry and exit, perfect information, and perfect mobility of resources.
What are the conditions necessary for a market to be considered a perfect market?
The conditions necessary for a market to be considered a perfect market include a large number of small firms, identical products, freedom of entry and exit, perfect information, and perfect mobility of resources.
What is the significance of perfect competition in terms of allocative efficiency and productive efficiency?
Perfect competition provides both allocative efficiency and productive efficiency. Such markets are allocatively efficient, as output will always occur where marginal cost is equal to average revenue (MC = AR). In addition, any profit-maximizing producer in perfect competition faces a market price equal to its marginal cost (P = MC).
In what way are perfectly competitive markets not necessarily productively efficient in the short run?
In the short run, perfectly competitive markets are not necessarily productively efficient, as output will not always occur where marginal cost is equal to average cost (MC = AC).
Why does a monopoly not have a supply curve?
A monopoly does not have a supply curve because the abandonment of price taking creates considerable difficulties for the demonstration of a general equilibrium, except under very specific conditions such as that of monopolistic competition.
Test your knowledge of perfect competition and general equilibrium theory in economics with this quiz. Explore the idealizing conditions and characteristics of a perfect market, and learn about the equilibrium outcomes in theoretical models.
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