What Assumptions Do We Make In Analyzing A Competitive Economy?

We assume that all markets are perfectly competitive that is, they are subject to the relentless competition of many buyers and sellers. Each price, whether for an input or an output, moves flexibly enough to equilibrate supply and demand at all times. Firm's maximum profits, while consumers choose their most preferred market baskets of goods. Each good is produced under conditions of constant or decreasing returns to scale. No pollution, externalities, entry limiting regulations, or monopolistic labor unions mar the competitive landscape. Consumers and producers are well informed about prices and economic opportunities. These conditions are obviously an idealized situation. But were such an economy to exist, it would be one in which Adam Smith's invisible hand could rule without any impediment from externalities or imperfect competition.    
For this economy, we can describe consumer behavior and producer behavior and then show how they dovetail to produce an overall equilibrium. First, consumer will allocate their incomes across different goods in order to maximize their satisfaction. They choose goods such that the marginal utility per dollar of expenditure is equal for the last unit of each commodity.