3.3.1 Perfect Competition

• What is perfect competition characterized by?

  Large buyers and sellers
• Homogenous products are a characteristic of perfect competition.


  True
• What type of information do buyers and sellers have in perfect competition?

  Full market knowledge
• Firms in perfect competition are price-takers.

  True
• In perfect competition, all products sold are completely identical
• What kind of market knowledge do buyers and sellers have in perfect competition?

  Complete knowledge
• What determines the equilibrium price and quantity in perfect competition?

  Demand and supply intersection
• Firms in perfect competition are price-takers because they cannot influence the market price.


  True
• What determines the equilibrium price and quantity in a market?

  Market demand and supply
• What is the goal of efficient resource allocation?

  Maximize societal welfare
• Marginal revenue is the additional revenue from selling one more unit
• In perfect competition, marginal revenue equals the market price.


  True
• When demand exceeds supply, the market price rises
• What are the four key characteristics of perfect competition?

  Large buyers and sellers, homogenous products, free entry and exit, perfect information
• Free entry and exit are key assumptions of perfect competition.

  True
• Process of price adjustments in a perfectly competitive market

  1️⃣ Demand exceeds supply

  2️⃣ Market price rises

  3️⃣ Suppliers increase production

  4️⃣ Supply exceeds demand

  5️⃣ Market price falls
• What does the market supply curve in perfect competition represent?

  Quantity sellers supply at various prices
• What type of demand curve does a firm in perfect competition face?

  Horizontal
• What determines the equilibrium price and quantity in a perfectly competitive market?

  Intersection of supply and demand
• What does it mean for a firm in perfect competition to be a price-taker?

  Cannot influence market price
• In perfect competition, what is marginal revenue equal to?

  Market price
• Steps in the market mechanism when demand exceeds supply in perfect competition

  1️⃣ Market price rises

  2️⃣ Suppliers increase production

  3️⃣ Equilibrium is restored
• Lack of product variety is a disadvantage of perfect competition.


  True
• Agricultural commodities like wheat are examples of industries close to perfect competition
• The market price in perfect competition is determined solely by the interaction of supply and demand.

  True
• In perfect competition, no single buyer or seller can influence the market price
• Match the characteristic of perfect competition with its description:

  Large Number of Buyers and Sellers ↔️ No single entity influences price

  Homogenous Products ↔️ All products are identical

  Free Entry and Exit ↔️ No barriers to market entry

  Perfect Information ↔️ Full market knowledge
• Arrange the key characteristics of perfect competition in a logical order:

  1️⃣ Large Number of Buyers and Sellers

  2️⃣ Homogenous Products

  3️⃣ Free Entry and Exit

  4️⃣ Perfect Information
• Why can no single buyer or seller influence the market price in perfect competition?

  Large number of participants
• Free entry and exit means no barriers prevent firms from entering or leaving the market.


  True
• Compare the characteristics of demand and supply curves in perfect competition:

  1️⃣ Demand Curve: Downward sloping

  2️⃣ Supply Curve: Upward sloping

  3️⃣ Demand Curve: Perfectly elastic

  4️⃣ Supply Curve: Firm's demand curve is horizontal
• The firm's demand curve in perfect competition is perfectly elastic
• At what point does profit maximization occur in perfect competition?

  MR equals MC
• The equilibrium price is the price at which the quantity demanded equals the quantity supplied
• Profit maximization in perfect competition occurs when marginal revenue equals marginal cost.


  True
• Why is a firm in perfect competition a price-taker?

  Numerous sellers and homogenous products
• What is the role of the market mechanism in perfect competition?

  Direct resources efficiently
• Equilibrium in a perfectly competitive market leads to optimal resource allocation.


  True
• In perfect competition, no single buyer or seller can influence the market price
• What ensures that the market price in perfect competition is determined solely by supply and demand?

  Perfect information