What Is Perfect Competition? Examples And Challenges

Perfect competition is a theoretical market structure in which there are a large number of buyers and sellers, each of whom is a small player in the market. This means that each firm is a price taker, meaning that it takes the market price of its product as given and does not have the ability to influence the market price. The firms in perfect competition are assumed to be identical, in the sense that they produce the same product at the same cost.

In perfect competition, the equilibrium price and quantity are determined by the interaction of supply and demand. The demand curve is the quantity of a good that is demanded at each price. The supply curve is the quantity of a good that firms are willing to produce at each price. The equilibrium price is the price at which the quantity of a good that firms are willing to produce is equal to the quantity of a good that is demanded. The equilibrium quantity is the quantity of a good that is traded in the market at the equilibrium price.

Perfect competition is a theoretical model that is used to understand various aspects of market behavior. It provides a benchmark against which other market structures can be compared. Perfect competition is also used to develop economic models that can be used to predict market outcomes.