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Summary A Level Revision Notes Economics Unit 3 Competition
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A Level Revision Notes Economics Unit 3 Competition Revision Notes
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Perfect competitionmarket structure where competition is
at its greatest possible level
many firms offer homogeneous products
because there is freedom of entry
and perfect information firms will make
normal profit and prices will be kept
low by competitive pressure
Homogeneous Product not unique other firms
sell products with similar
quality as yours
opposite Heterogeneous produc
Assumptions of perfect competition
Many buyers and sellers
in the market each producing a low percentage
of market output so can
not influence the market price each firm is a price taker
Homogenous products
are perfect substitutes have perfectly elastic demand curve
hence eachfirm is a price taker
No barriers to entry 1exit
ex ofBarriers to entry
of scale from Aircraft manufacture
Economies
Branding 1Advertising from Apple products
Legal barriers such as patents copyrights exadvertising wages
Firms face no sunk costs cost that is already incurred and cannotberecovered
entry and exit fromthe market is doable in the long run
Perfect information
having enough information to make an informed decision
consumers have available information about prices and products
from competing suppliers and can access it at zero cost
likewise sellers have perfect knowledge about their competitors
Perfect resource mobility
it is assumed other factors of production can be moved in to this
industry with relative ease
assume transport costs are insignificant
All firms are price takers
firms demand are perfectly elastic
commodity a raw material or
primary agricultural produ
Markets with perfect competition that can be bought and
Agricultural commodities such as wheat corn sold
Other commodities such as siret gold
, when demand9 when demandd
supply.gr supplyµ
Remember In the short run firms in perfect competition might make
economic profit
In the long run factors of production are variable
because
mobile firms will be attracted in to the industry
by the abnormal profit
Market supply will shift right bringing the price down
until firms are making normal profit once more
At this point no more firms are being attracted into
the market
Market More important than
Efficiency
Productive
efficiency Allocative efficiency
producing at the lowest producing what should be produced tohave
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