Perfect Competition

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Definition: Perfect Competition


Perfect Competition

Video Guide For Perfect Competition




Full Definition of Perfect Competition


Perfect competition refers to an economic model defining a hypothetical market form where neither producer nor consumer has the market power over prices. Moreover, the analysis of the model of perfect competition in the economic market is the basis of the supply and demand theory.

The chief standards which have to be met to achieve perfect competition are:

  • All producers sell a particular kind of good or service.
  • All firms possess a comparatively small market share.
  • All producers are price takers.
  • The entry and exit to the market are unhindered.
  • Consumers are aware of the nature of the products and the selling prices of each firm.

The idealized concept of perfect competition is used as a yardstick to measure the existent market forms of a particular country.

Perfect Competition And Pure Competition

Chiefly a theoretical construct, perfect competition is also known as pure competition in economics. It is characterized by a market equilibrium where all available resources are apportioned and utilized properly, thus maximizing the collective social welfare.

Degrees Of Perfect Competition

There are various degrees of competition in a particular market. There can be a supremely competitive market where there are a number of sellers.

Perfect Monopoly

In cases of a perfect monopoly, the seller who exercises maximum amount of discretion while fixing prices of his products is the most successful of the lot.

Price And Output In Perfect Competition

In a perfectly competitive market, price is also the average cost and marginal cost. Each unit is sold at an identical price. Equilibrium price and output are determined when:

MC (marginal cost) =MR (marginal revenue) and MC cuts MR from below.

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Definition Sources


Definitions for Perfect Competition are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 26th November, 2021 | 0 Views.