EC120 Lecture Notes - Lecture 14: Market Power, Marginal Revenue, Perfect Competition
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EC120 Full Course Notes
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A market is competitive if each buyer and seller is small compared to the size of the market and, therefore, has little ability to influence market prices. Competitive market: a market in which there are many buyers and many sellers so that each price has a negligible impact on the market price (price takers) Three characteristics: there are many buyers and many sellers in the market, the goods offered by the various sellers are largely the dame, firms can freely enter or exit the market. As a result of characteristics 1 and 2, the actions of any single buyer or seller in the market have a negligible impact on the market price. Each buyer and seller takes the market price as given. An example is the market for milk: no single buyer of milk can influence the price of milk because each buyer purchases a small amount relative to the size of the market.
