TEXT 2 PERFECT COMPETITION
Perfect Competition is a market structure in which the following five criteria are met: all firms sell an identical product; all firms are price takers – they cannot control the market price of their product; all firms have a relatively small market share; buyers have complete information about the product being sold and the prices charged by each firm and the industry is characterized by freedom of entry and exit. Perfect competition is sometimes referred to as «pure competition».
Under perfect competition, there are many buyers and sellers, and prices reflect supply and demand. Also, consumers have many substitutes if the good or service they wish to buy becomes too expensive or its quality begins to fall short. New firms can easily enter the market, generating additional competition. Companies earn just enough profit to stay in business and no more, because if they were to earn excess profits, other companies would enter the market and drive profits back down to the bare minimum.
Real companies try to make their products different from those of their competitors. They advertise to try to gain market share. They cut prices to try to take customers away from other firms. They raise prices in the hope of increasing profits. And some firms are large enough to affect market prices. Perfect competition is a theoretical market structure. It is primarily used as a benchmark against which other, real-life market structures are compared. The industry that most closely resembles perfect competition in real life is agriculture.
For example in the market for wheat there are many producers, and no individual producer can affect the market price by increasing or decreasing his output. For this reason, each farmer takes the market price as predetermined if he wants to sell any wheat at all. All he has to do is to decide on how much to produce at that price. The buyers can costlessly observe prices and can buy at the lowest one. The Theory of Industrial Organization predicts that in a competitive market, the price is at the intersection of the supply and demand, where the marginal value of the last unit purchased is equal to the marginal cost of the last unit produced.
Typically there are a few more assumptions added to the above description such as free entry and exit of participating firms, perfect divisibility of output and no externalities in either the production or the consumption of the good. Although a traditional description of a perfect competition outcomes presumes these conditions, recent experimental work has seriously challanged the necessity of some these assumptions. http://www.econport.org, http://www.investopedia.com
Chose the corresponding Russian word.