synonymperfect competition(Economic term) generally refers to a perfectly competitive market
Perfect competition market, also known as pure competition market or free competition market, refers to the market where there are many production and sales enterprises in an industry, and they all provide the same kind of standardized products (such as grain, cotton and other agricultural products) to the market in the same way.Neither the seller nor the buyer can control the price of goods or services.In this competitive environment, because both the buyer and the seller have no influence on the price and can only be the price receiver, any price increase or price reduction behavior of the enterprise will lead to a sharp decrease in the demand for the enterprise's products or unnecessary loss of profits.Therefore, the product price can only be determined according to the supply and demand relationship.[1]
As there are a large number of producers and consumers, compared with the production (sales volume) and purchase volume of the whole market, the production (sales volume) of any producer and the purchase volume of any consumer account for a small proportion.Therefore, no producer or consumer has the ability to affect the output and price of the market.Any individual market behavior of producers and consumers will not cause changes in market output (i.e. sales volume) and price.Another way to express it is: what any buyer facesElasticity of supplyIt is infinite, and the demand elasticity faced by sellers is also infinite.
There are many enterprises in the market. When each enterprise produces a certain product, it is not only a homogeneous product, but also has no difference in product quality, performance, appearance, packaging, etc., so that no enterprise can influence the price through its own product's uniqueness with others' productsMONOPOLYTo enjoy monopoly benefits.For consumers, no matter which enterprise they buy, the products are homogeneous and undifferentiated, so that many consumers cannot form according to the difference of productspreferenceThe buyer does not care about the manufacturer and brand when buying goods in the market[2]。That is to say, when all kinds of goods have complete substitutability with each other, it is very easy to approach the perfectly competitive market.
③ Resource mobility
It means that any manufacturer can enter a certain market completely freely and without difficulty, or withdraw from a certain market.That is, entering or exiting the market is completely decided by the producers themselves, and is not restricted by any social laws and other social forces.Since there is no social barrier to entering or leaving the market, when there is a net profit in an industry market, many new producers will be attracted to enter the industry market, which will cause a decline in profits, so that profits gradually disappear.When the industry market loses money, many producers will withdraw from the market, which will lead to the emergence and growth of industry market profits.In this way, for a long period of time, producers can only obtain normal profits, but not monopoly interests.
④ Information completeness
The market information is complete.Every buyer and seller in the market can obtain or hold all information related to their own economic decisions at any time without cost, especially sufficient information about prices and supply and demand in the market.[3]In this way, every consumer and manufacturer can make their own optimal economic decisions based on the complete information they have, so as to obtain the maximum economic benefits.Moreover, since every buyer and seller knows the set market price and trades according to the set market price, this also eliminates the possibility that a market may trade at different prices at the same time due to poor information.Therefore, no market entity cantariff, subsidiesrationOr any other artificial means to control market supply and demand and market price.[4]
Encyclopedia x Knowledgeable: Illustration of Perfect Competitive Market
Supply demand curve
Announce
edit
demand curve
Market demand curve D andSupply curveThe equilibrium point of S intersection determines theequilibrium priceP, for example.Because there are many sellers and buyers in a perfectly competitive market, no one can manipulate the market price.Therefore, the manufacturer is the passive receiver of the given market price. The horizontal line starting from the given price level P is the demand curve of a perfectly competitive enterprise. The enterprise will not and does not need to change this price level.[4]In other words, if the manufacturer's price is higher than P0，Consumers will not buy any products of the enterprise and will switch to other manufacturers.As long as manufacturers are willing to accept this price, they can sell as many as they want.However, this does not mean that the transaction volume will be enlarged accordingly, so the number of products produced by manufacturers depends on their cost structure.Therefore, thedemand curveIt is a horizontal line starting from the established market price.
Demand curve of perfectly competitive manufacturers[4]
Therefore, the demand level line of a perfectly competitive enterprise indicates that the sales price of the enterprise is fixed in the short term no matter how the sales volume changes.Therefore, the income increment obtained by each additional product sales is always equal to the unit price.Therefore, in a perfectly competitive market, price P=average income AR=Marginal revenue MR。For a perfectly competitive enterprise, the average income AR curve, marginal income MR curve and demand curve d are the same.
Supply curve
Short term supply curve
The supply curve is the number of goods that a manufacturer is willing to sell under certain conditions within a certain period of time.The supply curve can actually be represented by the marginal cost MC curve.Theoretically, with the increase of output, the marginal cost will first decrease and then increase.This is because when the output is small, the equipment of the enterprise is not fully utilized. As the enterprise employs more employees, the utilization efficiency of production equipment increases.When the equipment utilization is saturated, the production scale needs to be increased to expand the output.Therefore, the increase of marginal cost is mostly caused by the fact that the output and input costs cannot rise in equal proportion due to the restriction of a certain element in production.
However, when the short-term marginal cost SMC curve inclines to the upper right, it must pass through the lowest point of the average variable cost AVC curve.This lowest point is the manufacturer's closing point.Because when the product price is lower than AVC, it means that the enterprise cannot even reach the marginal revenue without considering the fixed costAverage variable costThe working capital cannot make ends meet, and production will be stopped.Therefore, the short-term supply curve is generally equal to or greater than AVC on the SMC curve（Short term average variable cost）The lowest part of the curve, that is, the SMC curve is greater than or equal to the part of the stop point.It inclines to the right and upwards, indicating the relationship between commodity prices and short-term supply of manufacturers in the same direction.That is, the higher the commodity price, the higher the output that the manufacturer is willing and able to provide.[5]
Long term supply curve
The short-term supply curve assumes that the factors of production remain unchanged, but in the long run, when manufacturers enter or exit an industry, changes in the output of the entire industry may affectFactor marketHas an impact onproduction factorsPrice of.According to the possible impact of changes in industry output on the prices of production factors, perfectly competitive industries are divided intoConstant cost industry、increasing cost industry andDecreasing-cost industry 。[4]
A change in the demand for production factors caused by the change in the output of the industry, which does not affect the price of production factors.The long-term supply curve of the industry is a horizontal line.
Long term supply curve of industries with constant cost[4]
A change in the demand for production factors caused by the change in the output of the industry will lead to an increase in the price of production factors.The long-term supply curve of the industry is a curve inclined to the upper right.
Long term supply curve of industries with increasing costs[4]
A change in the demand for production factors caused by the change in the output of the industry will lead to a decline in the price of production factors.The long-term supply curve of the industry is a curve inclined to the left and down.[4]
Long term supply curve of industries with declining costs[4]
Short term and long-term equilibrium
Announce
edit
Short term equilibrium
WhenMarginal revenue MRWhen it intersects the marginal SMC curve, it means that the demand curve intersects the short-term supply curve, and the short-term equilibrium condition of a perfectly competitive enterprise is obtained: MR=SMC.The intersection point E of MR curve and SMC curve is the equilibrium pointBalanced outputIf it is Q ', then the manufacturer will gain the maximum profit or the minimum loss.When the price P>short-term average cost SAC curve, the average income is EQ 'and the average cost is FQ'.becauseAverage incomeIf it is greater than the average cost, the manufacturer will gain profits (the shaded area in Figure 1).Therefore, if a manufacturer's cost function C=1000-4Q is known.It can be derived that its marginal cost MC=4, which is precisely the marginal revenue MR of the enterprise and the price of the enterprise's products.
Figure 1 Short term equilibrium of perfectly competitive firms (P>AVC)
The manufacturer's demand curve d is tangent to the lowest point of the SAC curve, which is the intersection of the SAC curve and the SMC curve, and is also the equilibrium point E of the profit maximization of MR=SMC.In the equilibrium output Q ', the average profit is equal to the average cost, and the manufacturer's profit is zero.This equilibrium point is called the manufacturer'sBreak even point。
Short term equilibrium of perfectly competitive firms (P=AVC)
Long term equilibrium
Under the condition that the price of the perfectly competitive market is given, the adjustment of all production factors in the long-term production of manufacturers can be shown in two aspects, one is the choice of the optimal production scale, the other is the decision to enter or exit an industry.[4]
Selection of optimal production scale by manufacturers in the long run
Selection of optimal production scale by manufacturersAssume that the price in the perfectly competitive market is P.,In the short term, given the production scale, the manufacturer can onlyoneAnd SMConeAccording to the equilibrium condition of short-term profit maximization MR=SMC, the manufacturer selects the optimal output Qone, the profit is a small shadow area.In the long term, according to the equilibrium condition of long-term profit maximization, MR=LMC, the manufacturer will reach the long-term equilibrium point Etwo, and select SACtwoAnd SMCtwoThe optimal production scale represented by the curve is used for production to obtain profits with large shadow area.
The manufacturer enters or exits the industry
Manufacturers enter or exit an industry in long-term productionThe adjustment of factors of production among various industries will always flow to the industry that can obtain the maximum profit, and will also flow out from the industry that has lost money, making the profit of the perfectly competitive manufacturers in the long-term equilibrium zero.
Type characteristics
Announce
edit
Market type division and characteristics
Market type
Number of manufacturers
Product differentiation
Control over price
How easy it is to enter and exit a market
Close to which market
perfect competition
quite a lot
No difference at all
No,
be prone to
Some agricultural products
monopolistic competition
quite a lot
There are differences
somewhat
It's easier
Some light industry and retail industry
oligarch
How many?
With or without difference
Considerable degree
Difficult
Steel, automobile, petroleum, telecommunications
MONOPOLY
only
The only product with no substitute
To a large extent, but often under control
Very difficult, almost impossible
Public utilities[4]
effect
Announce
edit
Promote the operation of micro economy to maintain high efficiency
The completely competitive market completely excludes anyMONOPOLYThe nature and any restrictions are operated completely according to the regulation of the market, which can promote the operation of the micro economy to maintain high efficiency.Because in a perfectly competitive market, inefficient and inefficient producers will be forced to withdraw from the market in the competition among many producers, and producers with high production efficiency will continue to exist. At the same time, producers with higher production efficiency will enter the market at any time to participate in market competition, and producers with higher production efficiency will win in a new round of market competition,Therefore, a perfectly competitive market can encourage producers to give full play to their enthusiasm and initiative and carry out efficient production.[6]
Promote the improvement of production efficiency
Perfect competitive market can promote producers to produce at the lowest cost, thus improving production efficiency.Because under the condition of perfectly competitive market type, each producer can only be the recipient of market price, so if they want to maximize their profits, they must produce at the lowest cost.That is, according to its productaverage costProduction is carried out at the output at the lowest point.Producers produce products with the highest output at the lowest production cost, which is an optimal scale production. Such production also wastes any resources and production capacity. Therefore, such production process is also a process to promote the continuous improvement of production efficiency and efficiency.[6]
Promote social interests
Competition in a perfectly competitive market effectively promotes the interests of society in the process of guiding producers to pursue their own interests.This isAdam SmithAnd famous conclusions.He believes that market competition guides every producer to constantly strive for their own interests. What they consider is not social interests, but because of theInvisible handHe tries his best to achieve a goal that is not what he intended to achieve.
When enterprises pursue their own interests, they tend to promote the interests of society more effectively than when they really want to.For example, if every producer tries to maximize the value of the products he produces, the result will inevitably lead to a great increase in the annual income of society, thus promoting the increase of social public interests.[6]
Improve the efficiency of resource allocation
Under the condition of a perfectly competitive market, resources can flow freely and continuously to the commodity production department that can best meet the needs of consumers. In the process of continuous flow of resources, effective choices of resources between different uses, different benefits, and different combinations in the production process are realized, so that resources can play a greater role,Therefore, the allocation efficiency and efficiency of resources will be greatly improved.
Maximizing the satisfaction of consumers and consumer demands
In a perfectly competitive market, the price trend is equal to the production cost.Therefore, "in many cases, it can form the lowest price for consumers", and the profit under the condition of perfect competition market is smaller than that under the condition of other non perfect competition market, so "in the case of pure competition, consumers make the most profit".At the same time, the perfectly competitive market can also "maximize the satisfaction of consumer demand".
Although there is almost no perfect competitive market in real economic life, it is still of positive significance to study the type of perfect competitive market.Analyzing and studying the form of perfect competition market is conducive to establishing the general theory of perfect competition market type. When people are familiar with the theory of perfect competition market type and its characteristics, they can use it to guide their market decisions.For example, producers can make correct output and price decisions when similar situations occur (such as when they are price receivers).What is more important is to analyze and study the theory of perfect competition market type, which can provide reference for analyzing and studying other market types.For example, in the case ofMonopolistic market、Monopolistic competitive marketandOligopoly marketThe theory of perfect competition market type can be used as a reference as a measurement standard in the process of comparative study of competition and efficiency.[6]
defect
Announce
edit
（1） The perfect competitive market is difficult to establish under the premise of real life. Therefore, the efficiency of the perfect competitive market must also be met under the condition of strict preconditions.However, in real economic practice, it is difficult to fully meet all the prerequisites for a perfectly competitive market. Therefore, in fact, it is very difficult for a perfectly competitive market to appear in real economic practice.Perfect competitive market is only studied by western economistsmarket economyA theoretical hypothesis in the theoretical process is a means and method for them to conduct economic analysis.In this way, the lack of practical significance has become the most fundamental defect of the perfectly competitive market form.Under the condition of this fundamental defect, the perfectly competitive market also has many other specific defects corresponding to the preconditions.
（2） It is neither possible nor applicable that a large number of small enterprises exist in a perfectly competitive market.In real economic practice, even if access to the market is very free, due to restrictions and effects of other conditions, there can be no unlimited number of enterprises entering the market.Even if there are a large number of enterprises in the market, these enterprises can only be small enterprises.With a large number of small enterprises, commodity prices in the market may be relatively high.Because, for one thing, the production scale of small enterprises is too small to carry outMass production, existsDiseconomies of scaleThe production cost is high.Therefore, the price of products produced by small enterprises is high.Second, small enterprises have little potential to reduce their production costs, because they are unable to introduce advanced production technology and equipment, and it is difficult for them to improve their production efficiency greatly, so that their production costs are difficult to reduce.Even if advanced production technology and equipment can be introduced, large-scale production can not be achieved. At this time, the production cost can not be reduced but will rise.
（3） Perfect competition market will also cause waste of resources.In a perfectly competitive market, free entry enables enterprises with higher efficiency and products that are more suitable for consumers to enter the market constantly, while enterprises with low efficiency and products that can no longer meet consumers' needs are constantly eliminated from the market.Small enterprises are easy to fail in the competition under the impact of progress and external interference, which has become a normal and frequent phenomenon in a perfectly competitive market.Those enterprises that quit the market due to failure in the competition are forced to stop using the equipment and labor force of their entire enterprises while they can still play a role, which inevitably causes waste of valuable material resources and labor resources.
（4） The assumption of complete knowledge in a perfectly competitive market is unrealistic.Generally, both producers and consumers can only have incomplete knowledge.It is impossible for producers to have a complete grasp of their position in the real market, future development trends and information on various factors affecting the market.They can only operate frequently in an uncertain world.It is impossible for consumers to fully understand the price and quality of all products in a specific market.At the same time, market information cannot be unimpeded and very accurate.Therefore, market participants cannot have complete, comprehensive and accurate market information and knowledge, and complete market knowledge can only be unrealistic theoretical assumptions.
Only a few industries, such as agricultural production, are close to the perfect competitive market, because there are many farmers in agricultural production and the production scale of each farmer is generally small. At the same time, the output of agricultural products produced by each farmer and its proportion in the total output of agricultural products are very small. Therefore,Each farmer's production and sales behavior can not affect the market price of agricultural products, and can only accept the market price of agricultural products.
If some farmers want to increase the selling price of their agricultural products, the market price of agricultural products will not rise because of this, and the ultimate result is that their products cannot be sold.If farmers want to reduce the selling price of their agricultural products, the market price of agricultural products will not decline because of this, although the farmers' agricultural products can be sold faster at a lower price than the market price.However, it is inevitable to suffer great economic losses.In this way, the behavior of farmers to reduce the price of their agricultural products is meaningless.[7]
