Chapter 8.1: Perfectly Competitive Markets

Price Taking

each individual firm sells a sufficiently small proportion of total market output, its decisions have no impact on market price

Price Takers

firm that has no influence over market price and thus takes the price as given

Product Homogeneity

the products of all of the firms in a market are perfectly substitutable with one another—that is, when they are homogeneous

Heterogeneous

each firm has the opportunity to raise its price above that of its competitors without losing all of its sales.

Free entry or exit

there are no special costs that make it difficult for a new firm either to enter an industry and produce, or to exit if it cannot make a profit.

horizontal demand curve

perfectly competitive in the sense that each firm faces a perfectly ____ for a homogeneous product in an industry that it can freely enter or exit.

highly elastic demand

many markets are highly competitive in the sense that firms face ___ curves and relatively easy entry and exit.