Question

What is Perfect Competition? Describe any three characteristics of Perfect Competition.

Answer 1

'Perfect Competition' is a market structure where there are a large number of producers (firms) producing a homogenous product so that no individual firm can influence the price of the commodity.
(i) Large number of sellers: The number of sellers is large and every individual seller sells a quite insignificant part of the total supply. No seller is able to influence the market price either by withdrawing from the market or by supplying its entire stock.
(ii) Large number of buyers: There are many buyers and no single buyer is able to influence the market price in any way. The quantity purchased by each buyer is too small to influence the market price.
(iii) Homogeneous product: All sellers sell completely identical products, in respect of quality, colour, size etc. They are perfect substitutes of one another. The product sold by different firms in the market are equal in the eyes of buyers. All sellers are equal in the eyes of buyers. No seller can charge higher price otherwise he is liable to his customers.
(iv) Free entry and exit of firms: These is no restriction on entry of new firms in the industry or exit of old firms from the industry.