Perfect Competition

• Perfect Competition describes a market structure where there are many buyers and many sellers. There are no barriers to entry and both buyers and sellers possess perfect information. There are no differentiation between products.
• Firms in a perfectly competitive market are price takers, as firms are too small and products are identical meaning they are unable to dictate their own prices.
• (theory)Characteristics of a Perfectly Competitive market?

  * Many firms in the market

  * No product differentiation (Homogeneous products)

  * No barriers to entry (Firms can enter the market easily)

  * Perfect knowledge

  * No influence on price
• In perfect competition it is assumed that both buyers and sellers have perfect knowledge and information. As a result, the price of a good is determined by supply and demand (market price).