Perfectly Competitive Market

Question #3

In this chapter we learned that there is no such thing as a perfectly competitive industry, as the concept is more of a hypothetical exercise to outline economic concepts in a vacuum. There are, however, industries which operate more closely to a perfectly competitive market than others.

The characteristics of a perfectly competitive industry are:

• Many firms producing an identical product

• Many available buyers

• Buyers & sellers have all rational info to make a decision (even playing field)

• Firms can enter & exit the market with ease

An example of an industry which is close to perfectly competitive is the corn industry within agriculture. This is because the crop is easy to begin producing, there are market rates in place, and there is little to no variation from one corn field to the next. This industry is easy to get into once you are a farmer, or to exit and divert resources to another agricultural product if the market demands it.

Another example of a close to perfect competitive market would be within the pizza making business. Pizza is popular, and demand is almost always high for the product, but because there is a low barrier of entry into the production-side of the industry, the market price is at an equilibrium which is relatively unwavering. If your favorite pizza shop were to raise prices well beyond the market price, you would quickly find a new favorite pizza shop.

A third example of an almost perfectly competitive industry would be the market for wooden toothpicks. If you were interested in producing within this market, you can expect extremely low and consistent marginal revenue due to the ease of large scale manufacturers from around the world to