Perfect Competition

• What is the number of participants in perfect competition?

  Many buyers and sellers
• What does homogeneous mean in the context of perfect competition?

  Identical products with no differences
• What are the conditions of entry and exit in perfect competition?

  Free entry and exit
• What type of information exists in a perfectly competitive market?

  Perfect information for buyers and sellers
• What does it mean for firms to be price takers?

  Firms cannot influence market price
• What is the condition for firms to maximize profit?

  Output where MC=MR
• What are externalities in the context of perfect competition?

  Neither positive nor negative externalities
• Why is perfect competition considered a theoretical extreme?

  It cannot happen in the real world
• What happens to short-run super-normal profits in perfect competition?

  Attracts new firms, profits decrease
• What occurs when firms incur short-run losses in perfect competition?

  Firms leave the industry, supply decreases
• What ensures that firms in perfect competition are efficient?

  Pressure of competition ensures efficiency
• What is productive efficiency?

  Producing at lowest average cost
• Is perfect competition productively efficient in the short run?

  No
• Is perfect competition productively efficient in the long run?

  Yes
• Is perfect competition allocatively efficient in the short run?

  Yes
• Is perfect competition allocatively efficient in the long run?

  Yes
• What is the trading volume in the Forex market?

  $3 trillion per day
• Who are the main players in the currency markets?

  Banks, hedge funds, central banks, corporations
• How has the internet affected competition in markets?

  Reduced barriers for new firms
• What is a criticism of price comparison websites?

  They may not reflect precise consumer needs
• What monopoly power exists in the price comparison market?

  Moneysupermarket.com has 40% market share
• What is the definition of perfect competition?

  A market structure with many buyers and sellers
• What are the implications of perfect competition for market efficiency?

  Ensures productive and allocative efficiency
• What role does competition play in ensuring firms are efficient?

  Firms must be efficient to survive
• What characteristics do products have in perfect competition?

  Products are homogeneous with no differences
• What is the impact of short-run profits on market dynamics?

  Attracts new firms, increasing supply
• What is the significance of perfect information in market transactions?

  Enables informed decision-making by buyers
• How does demand and supply interact in perfect competition?

  Determines market price and quantity
• What effects does the internet have on market competition and consumer behavior?

  Increases competition and price transparency
• What role do various market players have in the currency markets?

  Facilitate trading and manage currency risks