Perfect competition

What perfect competition means in economics, with an example and a question to test yourself.

Definition

Perfect competition: Perfect competition is a market where many firms sell identical products to many buyers, everyone has all relevant information, and firms can enter and leave freely.
Not to be confused with: Price taker: A price taker is a firm that the pressure of competing firms forces to accept the prevailing equilibrium price in the market.

Test yourself

What is the difference between perfect competition and price taker?

Learn it properly: the module