Question

Give assumptions of Perfect competition.

Explain the conditions necessary for the existence of perfect competition.

Explain briefly necessary conditions for perfect competition in the market.

Answer 1

1. Large Number of Buyers and Sellers: No single buyer or seller can influence the market price.
2. Homogeneous Product: All firms sell identical products - no brand difference.
3. Free Entry and Exit: Firms can enter or leave the industry freely in the long run.
4. Perfect Knowledge: Buyers and sellers have complete information about prices and products.
5. Perfect Mobility: Factors of production (land, labor, capital) can move freely across industries.
6. No Transport Costs: Transportation costs are either zero or the same for all firms.
7. Price Takers: Individual firms accept the market price as given.
8. No Government Intervention: Prices are determined purely by market forces - demand and supply.