perfect competition

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perfect competition

(ECONOMICS) the IDEAL-TYPE concept of a ‘free market’ in which:
  1. there exist many buyers and many sellers;
  2. units of the commodity are homogeneous;
  3. where any one buyer's purchases do not significantly alter the market price. In addition, the assumption is also made that buyers and sellers possess full information, that there is freedom of entry to the market for new producers. who are able to sell on the same terms as existing producers. The further implication is that no producer is in a position to make ‘excess profits’. Thus perfect competition is often equated with maximum economic efficiency Equally, however, it must not be ignored that the model is an ideal-type one. Thus, although real world conditions will sometimes be found which approximate to the ideal type, often they do not (see MONOPOLY). And there can be no assumption that the achievement of‘free market’ conditions will always produce optimum, efficient and ‘fair’ outcomes for all parties concerned (compare CAPITALIST LABOUR CONTRACT, UNEQUAL EXCHANGE).
References in periodicals archive ?
The Walrasian model has recently been called into question as the relevant basis for analysing and comparing closed and open leagues, since the assumption of a fixed supply of talent does not hold any longer with labour market globalisation after Bosman in open leagues but also in closed leagues (Osborne, 2006).
Assumption (4) of Walrasian model [partial derivative][w.sub.1]/[partial derivative][t.sub.1] = 1 implies [partial derivative][t.sub.2]/[partial derivative][t.sub.1] = -1 since, with a fixed supply of talent, such model is a zero-sum game, one unit of talent recruited by team 1 is subtracted to team 2.
Team 2 has only one response (loosing one unit of talent) to team 1's recruitment strategy in the Walrasian model. The ratio between wins and investment in talent (20) is equal to 1 when [t.sub.1]+ [t.sub.2] = 1, i.e.
Point b is stable according to the Walrasian model (a[prime] and c are unstable) while point b is unstable according to Marshall (a[prime] and c are stable).
The next conclusion is that the Marshallian model, and not the Walrasian model, captures the nature of the equilibration process; that is, the dynamics are Marshallian and not Walrasian since the convergence is toward the Marshallian stable equilibrium points.
Price and quantity movements are in the direction predicted by the Marshallian model and not in the direction predicted by the Walrasian model.
In Walrasian models there is only one basic equilibrium concept employed: prices adjust to equate demand and supply in each market.
This is never true in Walrasian models, where if government expenditure is pure 'waste', an increase will always reduce welfare, irrespective of the change in employment.
This still depends on the expectations elasticity, unlike in Walrasian models, and consequently so does the response to monetary growth.
The Walrasian model assumes that [P.sub.d] = [P.sub.s] = P and that the direction and speed of price adjustments follow a law of the form
The implication of the equation is that the Walrasian model represents the dynamics of market movements as resulting from a difference in the quantity demanded at a given price and the quantity supplied at that price.
If the markets are maintained under stationary conditions, the data will "tighten" around the equilibrium once they are "near." Second, the data can "sit" near prices that are unstable according to the Walrasian model.