Perfect Competition


Perfect competition refers to a market in which many firms produce identical products, barriers to entry into the market are very low, and firms compete for sales only on the basis of price. Firms face perfectly elastic demand curves at the price determined in the market because no firm is large enough to affect the market price. Perfect competition is just in theory, though some industries come close to it.  The wheat production industry in a region is a good approximation, where there is hardly any differences in the products. Wheat producers tend to price according to overall market supply and demand.

See also: Monopolistic Competition, Oligopoly, Monopoly

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