graph for perfect competition. Perfect competition is a market structure in which a large number of small firms compete with each other, selling identical products to a large number of buyers. In such a market, no single firm has the power to influence the market price, and each firm is a price taker. In this market structure, the concept of supply and demand plays a crucial role, and the market price is determined by the interaction of these two forces. To understand how the market price is determined in perfect competition, economists use a graphical representation of the market called the supply and demand graph.
How does a graph for perfect competition work
The supply and demand graph is a two-dimensional representation of the market in which the vertical axis represents the price of the product, while the horizontal axis represents the quantity of the product. The demand curve is a downward-sloping curve that represents the willingness of consumers to buy a product at a given price. The supply curve, on the other hand, is an upward-sloping curve that represents the willingness of firms to produce and sell a product at a given price.
In a perfectly competitive market, each firm is a price taker and cannot influence the market price. Therefore, the market price is determined by the intersection of the supply and demand curves. At this intersection point, the quantity of the product supplied by firms equals the quantity demanded by consumers, and the market is said to be in equilibrium.
characteristics of graph for perfect competition
The equilibrium point is the point where the market is in balance, and there is no excess supply or excess demand. At this point, the price and quantity of the product are stable, and the market is efficient in allocating resources. If the market price is above the equilibrium price, there will be excess supply, and firms will have unsold inventory. In this case, firms will lower their prices to clear their inventory, and the market price will eventually decrease to the equilibrium level. On the other hand, if the market price is below the equilibrium price, there will be excess demand, and consumers will not be able to buy the product they want. In this case, firms will increase their prices to take advantage of the excess demand, and the market price will eventually increase to the equilibrium level.
In conclusion, the supply and demand graph is an essential tool for economists to understand how the market price is determined in a perfectly competitive market. By using this graph, economists can analyze the market behaviour of both buyers and sellers and predict how changes in market conditions will affect the equilibrium price and quantity of the product using a graph for perfect competition