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