Why Is Perfect Competition Often Described As The Ideal Market Structure?
Perfect competition is a type of market structure where a large number of small firms producing identical products compete without any significant impact on prices or supply. There several factors which are followed in this particular model. Goods which are produced by the firms don’t have any product differentiation, in other words, they are homogenous and could substitutes each other in consumptions. As firms don’t have any market power and can’t influence prices due to their small size, rival companies won’t be following any changes in price, so customers are more likely to switch to another product which is the same and has a lower price if one product would become more expensive. It means that the demand for the product is very elastic. So each small firm is a ‘price taker’, and market sets the equilibrium price for the product. [pic]On the diagram which represents an industry a market supply curve intersects with market demand curve. The point of intersection is an equilibrium pr
