Perfect Competition

Perfect Competition

Perfect competition describes an economic structure framed by perfect information and optimised producer efficiency. It is defined by low barriers to entry and exit in which multiple firms produce the same or similar products and consumers rather than producers are the price makers. In a perfectly competitive economy, excess profits will act as a magnet for additional producers (which will reduce profits as a result of falling prices) while losses will lead to producer exits (which will reduce supply and cause prices to increase).

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