Definition of a market: a group of buyers and sellers of a particular good or service.
Markets can take many forms and may be organized (e.g., agricultural commodities) or less organized (e.g., ice cream).
What Is a Competitive Market?
Definition of a competitive market: a market in which there are so many buyers and so many sellers that each has a negligible impact on the market price.
Each buyer knows that there are several sellers from which to choose. Sellers know that each buyer purchases only a small amount of the total amount sold.
What Is a Perfectly Competitive Market?
In this lesson, we will assume that markets are perfectly competitive.
Characteristics of a perfectly competitive market:
The goods being offered for sale are exactly the same.
The buyers and sellers are so numerous that no single buyer or seller has any influence over the market price.
Because buyers and sellers must accept the market price as given, they are often called price takers.
Not all goods are sold in a perfectly competitive market.
A market with only one seller is called a monopoly market.
Other markets fall between perfect competition and monopoly.
Studying Perfect Competition
Perfectly competitive markets are the easiest to analyze because buyers and sellers take the price as a given.
It should be noted that because some degree of competition is present in most markets, many of the lessons learned by studying supply and demand under perfect competition apply in more complicated markets.
