Perfect Competition
Perfect competition is an ideal, unrealistic marketplace, useful to compare real marketplaces to.
Characteristics
- No barriers to entry / exit
- Many buyers and sellers
- Homogenous products
- Price Takers
- Super-normal profit in the SR only
- Mobile factors of production - can change marketplaces easily, e.g shifting from a carrot farmer to a potato farmer
- Profit maximiser
- Productively and allocatively efficient
- Perfect Knowledge - For buyer and seller.
Demand shifting right
This could happen due to changes in trends, etc.
At first, in the SR, the firm makes super-normal profit as the market price of the product rises and the firm is able to charge a higher price than its costs.
However, in the long run, SNP is competed away as new firms enter the market in order to get in on the SNP. Supply shifts right due to new firms entering the market, and the price returns to its original level.
