State with reasons, whether you Agree or Disagree with the following statements.
Perfect competition is an imaginary concept.
Yes we agree that perfect competition is an imaginary concept. This is because of the various features of a perfectly competitive market which are although ideal in nature but are difficult to realise in practical sense. The following are the features of perfect competition:
i. Large number of buyers and sellers - Under perfect competition, there are a large number of buyers and sellers. The number of sellers is so large that no individual firm has control over the market price of the commodity.
ii. Free entry and exit of firms - There is no restriction on the entry and exit of firms. This free entry and exit of the firms ensure that no firm earns either abnormal losses or abnormal profits in the long run.
iii. Homogeneous product - The product of each and every firm in the perfectly competitive market is a perfect substitute to others’ products in terms of quantity, quality, colour, size, features, etc.
iv. Perfect knowledge - In a perfectly competitive market, the buyers are aware of the prevailing market price of the product at different places and the sellers are aware of the prices at which the buyers are willing to buy the product.
v. Perfect mobility of factors of productions: In a perfect competition the factors of production are perfectly mobile. Such mobility implies that there is optimum utilisation of the factors of production.
vi. Absence of transport cost: In a perfect competition it is assumed that there is no transport cost. This further ensures that there is uniform price in the market.
As the above given features are difficult to take place in a practical world, the perfect competition is said to an imaginary concept.