PERFECT COMPETITION A MARKET THAT DOESN’T EXISTS

PERFECT COMPETITION

MEANING-

The market structure with a large number of buyers and sellers interacting with one another (competition). There is no monopoly. Furthermore, everyone is well informed. The price is not in the control of a single individual. for example – a foreign exchange market

FEATURES-

  1. LARGE NUMBER OF BUYERS AND SELLERS-

    In perfect completion, there are large number of buyers and sellers. Therefore, a single firm will be the price taker. Due to which they can’t affect the market price. Furthermore average revenue is equal to marginal revenue.

  2. HOMOGENEOUS PRODUCT- PRODUCT DIFFRENTIATION IS NOT POSSIBLE.

    Because large number of firms are producing the exact same product. Therefore the consumers can not differentiate between the products of various firms.

  3. FREE ENTRY AND EXIT-

    Due to this feature competitive firm earn only normal profit in the long term. The firm can easily enter and exit the firm. But when does this happen? Suppose, there is super normal profit, (which means price is greater than average variable cost). in such a case new firm will enter the market. As a result the market supply curve shifts rightward. Therefore reducing the price. On the contrary, in case of loss the firms will exit. Hence, the market supply will reduce and thereby increasing the market price till the point it will become equal to average cost

  4. PERFECT KNOWLEDGE-

    Both the buyers and sellers have the perfect knowledge. Therefore, no buyer will pay more price. as well as no seller will charge a lesser price. this will leave no scope for advertisement.

  5. NO GOVERNMENT INTERVENTION-

    There is no government intervention for example – tax, subsidies etc. Because forces of demand and supply control the market.

  6. NO TRANSPORTATION COST-

    There exist a single price in the market. Because of which it is assumed that buyer and sellers are close to the market. Therefore there is no transportation cost.

  7. PERFECT MOBILITY OF FACTORS-

    All the factors of production are easily available to all the sellers.  This ensures that a single price prevails in the market. Therefore helping the market to achieve equilibrium

  8. NO ATTACHMENT –

    Because all the products are identical the consumer cannot be biased. the consumer can not favor a single seller.

 

THEORITICĀLLY PERFECT COMPETITION EXISTS BUT IN REAL LIFE IT IS Ā MYTH.

 

ADAM SMITH – THE FATHER OF MODERN ECONOMICS

THE ECONOMIC TRIVIA ( ELASTICITY)

 

DEBENTURE A DEBT INSTRUMENT (TYPES)

 

 

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