Introduction:
A market means the whole set of condition under which a commodity is marketed, the extent and nature of competition in selling, the nature and number of buyers, the nature of the commodity that different seller of for etc. The features of perfect market depends on its nature.
On the basis of competition markets divides into
- Perfect markets
- Imperfect markets
The imperfect markets are classified as:
- Monopoly
- Duopoly
- Oligopoly
- Monopolistic competition
Perfect competition:
Meaning: A perfectly competitive market is one in which the number of buyers and sellers are very large. All engaged in buying and selling homogeneous product without any artificial restrictions and processing perfect knowledge of market at a time.
Perfect competition is a market structure in economics where a large number of buyers and sellers participate in the exchange of homogeneous (identical) goods or services. In a perfectly competitive market, no single buyer or seller has the power to influence the market price.
According to Bails, “the perfect competition is characterized by the presence of many firms. They all sell identically the same product. The seller is the price taker.
Features of perfect competition
- Existence of very large number of buyers and sellers: a perfectly competitive market will have a large number of sellers and buyers. Output of a seller will be so small that it is a negligible fraction of the output of the industry. Hence changes in supply made by a particular firm will not affect the total output and price.
- Homogeneous product: different firms constituting the industry produce homogeneous goods. They are identical in character hence no firms can rise its price about the general level.
- Free entry and exit of firms: there is absolute freedom to firms to get in or get out of the industry. If the industry is making profit new firms are attracted into the industry. Conversely firms will quit the industry if there are losses. This results in the realization of normal profit by all firms in the long run.
- Existence of single price: each unit bought and sold in the market commands the same price since products are homogeneous
- Perfect knowledge of the market: all the sellers and buyers will have the perfect knowledge of the market. Sellers cannot influence buyers and buyers cannot influence the sellers.
- Perfect mobility of factors of production: factors of production or free to move into any use or occupation in order to on higher rewards. Similarly, they are also free to come out of the occupation or industry if they feel that they are under remunerated.
- Full and unrestricted competition: perfectly competition market is free from all sorts of monopoly, oligopoly conditions. Since there are very large number of buyers and sellers. It is difficult for them to join together and form other organization. Hence each firms acts independently
- Absence of transport cost: all firms will have equal access to the market, consequently market price change by the sellers does not vary because of differences in the cost of transportation.
- Absence of artificial government control: the government do not normally interfere in the matters pertaining to supply and price. It does not place any banners in the way of smooth exchange. Price of a commodity is determining only by the interaction of supply and demand forces in the market.
- The market price is flexible over a period of time: market price changes only because of changes in either demand or supply force or both. Thus the seller, buyer, industry or the government do not influence price.
- The other features of perfect competition are.
- Price Takers: Each individual firm is a price taker, meaning they have to accept the market price as given. No single firm can influence the market price through its own actions.
- Perfect Mobility of Resources: Factors of production, such as labor and capital, can move freely between different firms and industries.
- No Externalities: There are no external costs or benefits imposed on third parties not directly involved in the production or consumption of goods and services.
- Profit Maximization: Firms in perfect competition aim to maximize their profits by adjusting their sales.
also read: explain the features of duopoly market.
