4.1.5.3 Perfect Competition (AQA A Level Economics Teaching Powerpoint)

This editable and downloadable PowerPoint covers perfect competition.

A perfectly competitive market is a hypothetical market structure characterised by the following:

• Many buyers and sellers: There are so many buyers and sellers that no single entity has significant influence on the market price.
• Identical products: All firms produce identical products, meaning there's no product differentiation.
• Perfect information: Buyers and sellers have all the information they need to make informed decisions.
• Free entry and exit: Firms can easily enter and exit the market, and there are no barriers to entry.

The result is that prices are determined solely by supply and demand, and firms earn normal profits (aka just enough to cover their costs).

Here are a few industries that come close to being perfectly competitive:

• Agricultural commodities: Think crops like wheat, corn, and soybeans - they're pretty much interchangeable, there are tons of buyers and sellers, and entry and exit is fairly easy.
• Foreign exchange: The currency market is huge, and with currencies basically being the same (a dollar is a dollar is a dollar), it's as close to perfect competition as you can get!
• Online ad exchanges: Buyers and sellers of online advertising compete fiercely in these digital marketplaces, with prices being set by algorithms based on supply and demand.