Producers earn zero economic profits in the long run.Buyers and sellers do not incur costs in making an exchange of goods in a perfectly competitive market. Both buyers and sellers have perfect information about the price, utility, quality, and production methods of products.Producers enter and exit the market freely.The characteristics of a good or service do not vary between suppliers. If a firm tries to raise its price consumers would buy from a competitor with a lower price instead. Their own production levels do not change the supply curve. All producers contribute insignificantly to the market.Nevertheless, it is used because it provides important insights.Ī perfectly competitive market has several important characteristics: However, in practice, very few industries can be described as perfectly competitive. Because of this it serves as a natural benchmark against which to contrast other market structures. Perfect competition leads to the Pareto-efficient allocation of economic resources. Agriculture comes close to being perfectly competitive.
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