Competitive market

The perfect competition (also: Polypol on the perfect market) is a theoretical model of economics, especially microeconomics.

Assumptions

The model is based on the following assumptions:

  • There are many small vendors who are facing many buyers. ( Polypol )
  • The market is completely transparent and each demander knows all providers; the traded goods are homogeneous ( perfect market )
  • The price elasticity of demand is perfectly elastic. If a provider increases its price, the demand will no longer buy from him, but go to other providers. The providers are thus a horizontal price-demand function against.
  • The market price is a date for the provider and is constant.
  • Each provider may determine in its capacity, how much milk he produces at a given price and sells at the market. ( Price takers )
  • The suppliers have increasing marginal costs.

Market equilibrium

The market equilibrium is reached when cut supply and demand curve in a price-quantity diagram. In perfect competition, the market price is constant and thus already answered. The equilibrium quantity is where the marginal cost of the supplier cut the price-demand function.

Marginal cost pricing rule

The market price is initially set for each provider. With changes in market demand, this price can change, however. In this case, a new profit-maximizing production quantity by the provider must be found. Here, too, the market price with the marginal cost must match (). The marginal cost curve thus forms the supply curve of Polypolisten on the perfect market.

Taxes and their effect under perfect competition

Taxes are raised under perfect competition, there is a welfare loss because the tax revenue can not offset the accumulated losses of consumer and producer surplus. ( Total economic welfare is the sum of producer and consumer surplus and the tax revenue. ) Is referred to as a so-called deadweight loss.

  • Microeconomics
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