Assumptions of the Perfect Competition Model
The perfect competition model is built on five assumptions:
- The market consists of many buyers. Any single buyer represents a very small fraction of all the purchases in a market. Due to its insignificant impact on the market, the buyer acts as a price taker, meaning the buyer presumes her purchase decision has no impact on the price charged for the good. The buyer takes the price as given and decides the amount to purchase that best serves the utility of her household.
- The market consists of many sellers. Any single seller represents a very small fraction of all the purchases in a market. Due to its insignificant impact on the market, the seller acts as a price taker, meaning the seller presumes ...
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