9.1 Perfect Competition: A Model LEARNING OBJECTIVES Explain what economists mean by perfect competition Identify the basic assumptions of the model of perfect competition and explain why they imply price-taking behavior Virtually all firms in a market economy face competition from other firms In this chapter, we will be working with a model of a highly idealized form of competition called “perfect” by economists Perfect competition is a model of the market based on the assumption that a large number of firms produce identical goods consumed by a large number of buyers The model of perfect competition also assumes that it is easy for new firms to enter the market and for existing ones to leave And finally, it assumes that buyers and sellers have complete information about market conditions As we examine these assumptions in greater detail, we will see that they allow us to work with the model more easily No market fully meets the conditions set out in these assumptions As is always the case with models, our purpose is to understand the way things work, not to describe them And the model of perfect competition will prove enormously useful in understanding the world of markets Assumptions of the Model Attributed to Libby Rittenberg and Timothy Tregarthen Saylor URL: http://www.saylor.org/books/ Saylor.org 465