Why is perfect competition the simplest market structure?

Question:

Why is perfect competition the simplest market structure?

Perfect Competition:

Perfect competition is one of the four market structures, which has many sellers, all of whom sell an identical product.

Answer and Explanation:

Perfect competition is the simplest of the four market structures because it is based on the easiest assumptions. By assuming that all products are identical, there will be no price differences because of the quality of the product. This model also takes out consumer preferences in the decision making process since no one will prefer one product over the other since they are all the same. Because of this, any changes in supply and/or demand will impact all producers and consumers equally, so it is easier to explain the dynamics of price and output when one of these factors changes.


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Perfect Competition in Economics & Adam Smith's 'Invisible Hand'

from Economics 101: Principles of Microeconomics

Chapter 7 / Lesson 1
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