Attributed to Libby Rittenberg and Timothy Tregarthen Saylor.orgThe availability of information that is assumed in the model of perfect competition implies that information can be obtain
Trang 1Attributed to Libby Rittenberg and Timothy Tregarthen Saylor.org
The availability of information that is assumed in the model of perfect
competition implies that information can be obtained at low cost If
consumers and firms can obtain information at low cost, they are likely to
do so Information about the marketplace may come over the internet,
over the airways in a television commercial, or over a cup of coffee with a
friend Whatever its source, we assume that its low cost ensures that
consumers and firms have enough of it so that everyone buys or sells
goods and services at market prices determined by the intersection of
demand and supply curves
The assumptions of the perfectly competitive model ensure that each
buyer or seller is a price taker The market, not individual consumers or
firms, determines price in the model of perfect competition No individual
has enough power in a perfectly competitive market to have any impact on
that price
Perfect Competition and the Real World
The assumptions of identical products, a large number of buyers, easy
entry and exit, and perfect information are strong assumptions The notion
that firms must sit back and let the market determine price seems to fly in
the face of what we know about most real firms, which is that firms
customarily do set prices Yet this is the basis for the model of demand and
supply, the power of which you have already seen
When we use the model of demand and supply, we assume that market
forces determine prices In this model, buyers and sellers respond to the
market price They are price takers The assumptions of the model of
perfect competition underlie the assumption of price-taking behavior