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MODULE 58

Introduction to Perfect Competition

In this Module, you will learn to:

Recall the example of the market for organic tomatoes from our discussions in Section 10. Jennifer and Jason run an organic tomato farm, but many other organic tomato farmers, such as Yves and Zoe, sell their output to the same grocery store chains. Since organic tomatoes are a standardized product, consumers don’t care which farmer produces the organic tomatoes they buy. And because so many farmers sell organic tomatoes, no individual farmer has a large market share, which means that no individual farmer can have a measurable effect on market prices. These farmers are price-taking producers and their customers are price-taking consumers. The market for organic tomatoes meets the two necessary conditions for perfect competition: there are many producers each with a small market share, and the firms produce a standardized product. In this module, we build the model of perfect competition and use it to look at a representative firm in the market.