Question

What are the features of perfect competition?

Explain the features of perfect competition.

Explain the main features of perfect competition.

Explain briefly the necessary conditions for perfect competition in the market.

Explain the conditions of a competitive market.

Answer 1

The following are the features of perfect competition:

1. Large number of buyers: In a perfectly competitive market, there are many buyers purchasing the product. The number of buyers is so great that no single buyer has the power to affect the market price. Therefore, each buyer simply accepts the price as it is; they are price takers.
2. Large number of sellers: In a perfectly competitive market, there are many sellers offering the same product. The number of sellers is so high that no individual seller can affect the market price. Instead, the market’s overall demand and supply set the price. Therefore, each seller accepts the market price as given and has no control over it.
3. Homogeneous Product: In a perfectly competitive market, all firms produce and sell identical products. This means that each unit of the commodity is identical in terms of size, shape, colour, quality, and other features. As a result, the products offered by different firms are perfect substitutes for one another.
4. Freedom of entry and exit: In a perfectly competitive market, firms can enter or leave the industry without facing any barriers. If there is a chance to earn profit, new firms can join the market easily. Likewise, if firms expect to face losses, they can leave the market freely.
5. Perfect Knowledge: Buyers and sellers must have perfect knowledge about the market conditions. They should have complete information about the price at which goods are bought and sold and the place where the transactions take place, etc.
6. Perfect mobility of factors of production: Different uses of land in a perfectly competitive market demonstrate occupational mobility. Other factors of production, such as labour, capital, and entrepreneurship, are not only occupationally mobile but can also be moved from one location to another, indicating geographic mobility.
7. No transport cost: All sellers are assumed to be equally near or far from the markets, so they all have the same transport cost. Therefore, we assume that all sellers have a constant or absent transport cost.
8. Absence of Government Intervention: There is no government intervention with respect to the production, transportation, or exchange of goods.
9. Uniform price: There exists a single uniform price in the market and it is determined by the forces of demand and supply.
10. Demand curve of the firm: Since the firm is a price taker, it can sell any amount of the commodity at the prevailing price. Thus, the demand curve is facing the horizontal line.