Explain the features of perfectly competitive market. How is price of a commodity determined under it ?
Answers
the following are the features of perfect competition market :
1.large number of sellers and large number of buyers .
2. homogeneity of the commodities.
3. free entry and free exit .
4. perfect mobility of factors of production .
5. absence of transport cost .
6. perfect knowledge of the market .
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Answer:
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: