Assumptions of a Perfectly Competitive
Market
By Delcie Peters
In a perfectly competitive market, no participants are
large enough to have market power..
There are six conditions we covered
in class…
Private Good
ExcludableOnce consumed, this good may not be available for others
Rival in consumptionSatisfies individual want
Prevents consumption at the same time
Examples of private goods: clothing and
food
Homogeneous Good
All units are the samePhysically identical or…
Viewed as identical by buyers
Examples of homogeneous good: metal & barrel of oil
Many Buyers, Many Sellers
Price is essentially set by the market
A seller may reason: “If I charge more than market price, customers will know they can get a better deal somewhere else. They will then buy from the competition, and I won’t have customers.”
Perfect Property Rights
Perfectly defined
Transferrable (legal and protected)
Enforceable
No Barriers to Entry or Exit
It is relatively easy for a business to enter or exit in a perfectly competitive market.
Minimal fees and regulations
Perfect Information
Quality and price of a product are assumed to be known by all consumers and producers.
Sources
www.businessdictionary.com
www.faculty.lebow.drexel.edu
www.glossary.com
www.wikipedia.com
Econ 202 Notes