Step 1

Read the following scenario:

Imagine a market where there is perfect competition between two or more companies, such as a fish market where vendors offer the same products at the same price or online ticket auctions like StubHub. In this market there are four key elements to perfect competition:

• a large number of buyers and sellers
• no barriers to entry or exit
• perfect mobility for customers choosing products
• homogenous products

Step 2

Answer Questions:

• Explain how output, price, and profit are determined in your perfectly competitive market in the long run.
• How does that lead to efficiency?
• How could changes in technology affect the market?
• How could an increase in demand affect the market?
• What are the effects of new businesses entering the market?
• What are the effects of businesses leaving the market?