Perfect competition (HL only)
Activities
The student activities on this page are connected to the teacher page: Perfect competition (HL only)
Conditions of perfect competition
Very large numbers of sellers and buyers, each too small to influence the market supply/demand and hence market price. In other words, the businesses in perfect competition are price takers and not price makers.
All firms sell the same homogenous (identical) product, making them indistinguishable for consumers and hence no brand loyalty. There are no branded products in perfect competition.
Perfect knowledge for both buyers and sellers. Each producer is fully aware of the costs and prices set by their competitors. Consumers are also fully aware of prices in the market and the quality and availability of those products.
Freedom of entry and exit into and out of the market. This means that firms can easily shut down should profits fall below the normal profit level and equally easily set up when abnormal profits make the market attractive.
The class exercises are available as a class handout in PDF form at: 
Perfect competition
Beginning activity
Watch the following short video and then answer the following two questions:
(a) According to the video what are some of the assumptions of a perfectly competitive market?
(b) Which two sectors within South Africa come under criticism in the video for not operating in a competitive market?
Activity 2
The video focus on the agricultural sector in Poland, a market that some economists believe shares many of the characteristics of perfect competition. Watch the short video and then decide for your self, before deciding what makes perfect competition different to the other market structures featured in the video:
(a) Which of the conditions of perfect competition does the Polish farming sector satisfy?
(b) What differentiates the agricultural market in Poland from the retail market featured in the video?
(c) How could the Polish farmers differentiate their products to raise prices?
(d) What market structures were the car industry and the water company featured in the video?
Activity 3: Short answer questions
Start by watching the following short video which illustrates how to draw the market for a firm in perfect competition. Then complete the short questions which follow:
(a) What is the relationship between P and MR?
(b) Are the firms in perfect competition producing at the profit maximising level of output?
(c) Why would demand be perfectly elastic for an individual firm in a perfectly competitive market?
(d) Why is the PED elasticity for individual firms in perfect competition equal to Ѡ (infinity)?
(e) Complete the diagram by drawing the AR and MR curve and mark the equilibrium level of output and price.
Activity 4
Based on what you have learnt about perfect competition so far, do you believe that this market structure is likely to offer low prices for the consumer, compared to less competitive structures?