The availability of information that is assumed in the model of perfect competition implies that information can be obtained at low cost If consumers and firms can obtain information at low cost, they are likely to so Information about the marketplace may come over the internet, over the airways in a television commercial, or over a cup of coffee with a friend Whatever its source, we assume that its low cost ensures that consumers and firms have enough of it so that everyone buys or sells goods and services at market prices determined by the intersection of demand and supply curves The assumptions of the perfectly competitive model ensure that each buyer or seller is a price taker The market, not individual consumers or firms, determines price in the model of perfect competition No individual has enough power in a perfectly competitive market to have any impact on that price Perfect Competition and the Real World The assumptions of identical products, a large number of buyers, easy entry and exit, and perfect information are strong assumptions The notion that firms must sit back and let the market determine price seems to fly in the face of what we know about most real firms, which is that firms customarily set prices Yet this is the basis for the model of demand and supply, the power of which you have already seen When we use the model of demand and supply, we assume that market forces determine prices In this model, buyers and sellers respond to the market price They are price takers The assumptions of the model of perfect competition underlie the assumption of price-taking behavior Attributed to Libby Rittenberg and Timothy Tregarthen Saylor URL: http://www.saylor.org/books/ Saylor.org 469