ABSTRACT
This chapter discusses perfectly competitive markets and the implications of these markets for economic efficiency and equity. It considers different types of markets based on the degree of market power held by sellers. The chapter considers markets in which sellers, as well as buyers, possess no market power. It presents a more formal model of production decisions in a perfectly competitive market. The chapter also describes that economic profits are an important concept in the traditional model of perfect competition. It considers how a seller will behave when it is accruing economic losses rather than making an economic profit. The chapter ends with a discussion of efficiency and equity in perfectly competitive markets. Moving beyond a single perfectly competitive market, economists have proven that an entire economy that consists only of perfectly competitive markets will have an efficient allocation of all resources, without any government regulation.
