8.1 Perfect Competition

Perfect competition is a common market structure with very desirable properties, so it is useful to compare other market structures to competition. In this section, we examine the properties of competitive firms and markets.

Price Taking

When most people talk about “competitive firms,” they mean firms that are rivals for the same customers. By this interpretation, any market with more than one firm is competitive. However, to an economist, only some of these multifirm markets are competitive.

Economists say that a market is perfectly competitive if each firm in the market is a price taker that cannot significantly affect the market price for its output or the prices at which it buys inputs. Why would a competitive firm ...

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