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Perfect Competition/Microeconomics Essay Example

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Perfect Competition/Microeconomics

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A business can easily enter or leave a perfectly competitive market as there are no legal barriers that control the entry and exit of firms from any industry. This means that any new firm can easily enter a market if it stands to gain. Also, existing firms may leave the market incase they are experiencing losses.In perfect competition buyers and sellers do not incur any costs in making any exchange since it is assumed that every firm posses equal access to the market. In other words, no sing firm has greater privileges over other participating firms in the competitive market environment.A perfectly competitive market is composed of a large or infinite number of small firms in which no single firm is too large compared to the whole market that it can influence the price of the product it sells. This implies that the quantity of products sold by an individual firm is so small that even if it withdraws from the market the total supply would not fall to an extent that the price of the product would increase.The quality and prices of products in the market should be known by all consumers and producers. This means that buyers cannot pay a price higher than the prevailing price in the market. Similarly, sellers also cannot sell their products at a price below the one dictated by the market.One example of perfect competition is farming. In the agricultural sector, several farmers in some cases produce farm outputs and sell it at fixed prices to the government. There is no possibility of one particular farmer hiking prices of his/her produce while all other suppliers are selling the same product at a fixed price. Yet another example of perfect competition is in regard to internet service providers (ISPs). There are numerous other companies that sell their products under perfect market situations. One main characteristics of this kind of market in practice is that prices generally get lowered or raised by all participating companies at more or less the same time.Like every other kind of market, the perfect market is often associated with numerous advantages and disadvantages. Fogiel (2000) gives the following advantages and disadvantages of perfect competition.In a perfectly competitive market there is optimal allocation of resources because the price of the products equals the marginal cost. The competition between firms also encourages efficiency because the firms

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preview essay on Perfect Competition/Microeconomics
  • Pages: 4 (1000 words)
  • Document Type: Essay
  • Subject: Unsorted
  • Level: Masters
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