Class 12 Economics Features of Perfect Competition Market
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- LARGE NUMBER OF BUYERS AND SELLERS
The number of buyers and sellers is so large that none of them can influence the prevailing price of the commodity in the market. This is because the share of an individual buyer or an individual seller in the total market demand and supply is insignificant. The price of the commodity is actually determined by the forces of aggregate demand and aggregate supply and once it is fixed, an individual buyer or firm has to accept it.
IMPLICATION is that each seller in a perfect competition market has to accept the price determined by the forces of aggregate demand and aggregate supply and hence the firms become the price taker and the industry becomes the price maker.
- HOMOGENEOUS PRODUCT
The product being sold in a perfect competition market is homogeneous in nature. This means that the commodities are identical in terms of color, size, shape, quality, size, weight etc. Hence, no seller can charge a different price for its products in the market. This is because the consumer is indifferent to all the sellers in the market. If any seller charges a different price from its customers, he may end up losing them.
IMPLICATION of this feature is that all the firms have to charge the same price for the product otherwise no one will buy from an overcharging firm.
- FREE ENTRY AND EXIT OF THE FIRM
Buyers and sellers are free to enter or quit the market as and when needed. New firms which are induced by high profits of the industry may enter it and the firms which are struggling for their survival due to heavy losses may leave the industry.
IMPLICATION of free entry and exit of the firms is that no firm is that no firm can earn above normal profit In the long run. Each firm earns a just normal profit.
- PERFECT KNOWLEDGE
The buyers and sellers have perfect knowledge about the prices and costs of goods in different parts of the market. All sellers have equal access to technology and inputs leading to equal costs of production. This results in the uniformity of the prices of the commodity.
- PERFECT MOBILITY
There is a free mobility of goods and factors of production without any hindrance or obstruction. The factors are free to enter or leave the market anytime.
- ABSENCE OF TRANSPORT COST
In perfect competition market, it is assumed that there is no transportation cost for consumers since the product being sold is homogeneous in nature, i.e it is identical and available at the same price throughout the market.
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