REM315 EXERCISES TUTORIAL 3

Distinguish between perfect and imperfect competition in a market. (25marks)

PERFECT COMPETITION IMPERFECT COMPETITION MARKET

There are always many players in the There can be few to many players.
Number of firms market.

There are no barriers to entry and exit The barriers to entry not only exist but
which is not true in the case of non- may also be very high so that no new
Barriers to Entry
competitive markets. participant may easily entering the
market.
The sellers sell identical products. The sellers sell non-identical products.
This means that sellers in the imperfectly
Product
competitive market choose their own
Differentiation
specialties according to their knowledge
and choice.
Non-price None By advertising and product differentiation.
competition

This is theoretical. It is impossible to Situation that found in the present-day

Nature of find a perfectly competitive market. It world or being practical. The markets we
Concept is usually used as a standard which have in real life are all imperfect
has no real-life example. competition.
The sellers cannot decide the price of The sellers can decide the prices, so they
the products. The prices are set by are the price makers.
Price Decision
market forces. So, the sellers are price
takers in competitive markets.
There are many buyers and sellers, When the condition is not met, it is
the sellers sell identical products to considered imperfect competition.
The condition
the buyers, then it is known as perfect
competition.
Pure and perfect competition in price. No price or product competition at all.
Nature of
Competition

Demand is perfectly elastic. Demand Demand is inelastic. Demand curve slopes

Demand curve is horizontal straight line. is downward