Describe any four characteristics of a perfectly competitive market
Answers
1. Number of Firms
There are very many small firms (think of a grain of sand on a beach), too many to count.
2. Homogenous
All producers of a good sell the same product, i.e. they are homogenous/identical.
3. Barriers to Entry
There are no barriers to enter or exit the market (sometimes high costs or strict regulations prevent firms from entering)
4. Perfect Information
All consumers and producers have ‘perfect information’, i.e. everyone knows the price of the product, the demand & supply
Answer:
The other extreme situation of monopoly market is called perfectly competitive market
or perfect competition.
Feature of Perfect Competition
(i) Large number of sellers and buyers – As against monopoly market, a
competitive market has large number of sellers selling the commodity to a large
number of buyers.
(ii) Homogeneous product: Under perfect competition only a single product is sold.
This means all the sellers sell the same type of product to buyers. So the product
is a perfect substitute.
(iii) Free entry and exit: Under perfect competition there is no bar on any new firm
or producer to enter the market to sell or produce the product. Similarly if any
existing seller wants to exit then he is free to do so.
(iv) Every seller wants to earnmaximum profit
(v) The government’s role is to provide protection to sellers and do not
interfere in business.
(vi) Under perfect competition sellers and buyers have perfect knowledge about the
product.
(vii) There is no bar on factors of production such as labour etc. to move from one
production unit to another to do work
Explanation: