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There are five characteristics of perfect competition, and it's important to understand these so that we can explain and understand when perfect competition is actually occurring.
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And even though this tends to be very rare within true realistic markets, it's still important to have this sort of baseline to compare markets too.
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So let's go over these characteristics of perfect competition.
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The first of which is that there must be numerous buyers and sellers.
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And essentially what this does is it allows these market forces of these buyers and sellers to set an equilibrium price.
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It allows these agents to act as market forces.
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The second characteristic is going to be that there must be a standardized product, and this allows consumers to choose between which firm they purchase from.
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So these standardized products exist so that consumers can kind of shift as they see fit depending upon which producer, which firm is giving them maybe a lower price.
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However, if we had a product that was no longer standardized, if one of these firms was able to differentiate in some way, it would no longer be a perfectly competitive market...