01:220:102 Lecture Notes - Lecture 9: Substitute Good, Perfect Competition, Demand Curve
1. Perfect Competition
1. Characteristics
1. Large number of sellers
1. no one seller or group of sellers can have a significant effect on
the terms of exchange (transaction terms)
1. prices, quantity, share of market, type of product, distribution,
innovation, service warranty/guarantee
2. All sellers compete for buyers of the same (homogenous) product
3. The price is set
1. sellers must charge the going price or lose their sales to the
other firms
2. the firms are price-takers (they sell at the set prices in the
market)
4. No barriers to entry for firms that want to enter the market
1. examples: technological secrets, financial barriers, legal
constraints
5. No barriers to exit
1. examples: government subsidies, tax relief, import quotas, high
tariffs
6.
7. The products produced are perfect substitutes for each other because
they are homogeneous
8. No pricing strategy
9. The price elasticity of demand for each firm is perfectly elastic
2. Monopoly
1. Characteristics
1. One seller of a product for which there are no close substitutes
2. Mostly inelastic
1. but consumers can be influenced by price changes
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01:220:102 Full Course Notes
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