Without doubt, this is probably the most important chapter in your text! Everything you've learned so far (demand/supply, elasticity, production/cost functions, short run/long run., etc.) will come up again in this chapter.
Let's begin.
Perfect Competition is the first of four market structures studied in microeconomics. These four market structures are:
Perfect Competition
Monopolistic Competition
Oligopoly
Monopoly
You'll need to remember a few characteristics of each market structure in terms of how many firms exist in the industries, what type of product is produced, shape of the demand curves facing the firms, etc.
Characteristics of Perfect Competition
1. many, many, many firms
2. firms produce an identical product
3. no barriers to entry and exit into the market
4. firms are price-takers (this implies a horizontal demand curve)
5. perfect information
It's true that the model of perfect competition is simply an ideal by which to compare all other market structures (i.e., imperfect competition) and most likely does not really exist in the real world; however, this model is very useful as a "benchmark" as you will soon see.
Examples of Perfect Competition
It's always useful to think of examples associated with each market structure as you study them. In fact, there's a very useful table on page 157 of your text. Although perfect competition is an "ideal" market structure that doesn't really exist, firms that come fairly close to the perfectly competitive model could be the stock market, some firms agricultural, ebay, etc.
