Question

Explain in your own words, the characteristics of a perfectly competitive market. For each characteristic, give an example of a firm or industry that would exhibit that trait. Keep in mind that no one firm can hold every characteristic.

Answer 1

Now agricultural market is seen to have large number of buyers and sellers they are also selling homogeneous products,

Also in agricultural markets there are free entry and exit of firms, as there is no barrier to enter the agricultural markets for the firm, nor the natural barriers nor any legal barriers.

Also both the economic agents, consumers and prpducers have perfect knowledge of the [rices of the products in agricultural markets thus noone is going to pay higher and no producer is going to accept lower than the defined prices.

Answer 2

A perfectly competitive market is such a market where we get many sellers and buyers and this market has some characteristics and these are -

I)Many sellers and many buyers: In this market we get a large number of sellers and large number of buyers exist in the market. As a result no market power for a single seller or buyer.

II) Perfect Knowledge and Information: In this market there is full perfect knowledge and information about the market. The sellers and buyers have the full information about the market.

III) Free entry and exit: In this market there is free entry and exit. At any point of time any firm can enter into the and can go out from the market. Here the entry and exit is free completely no restriction.

IV) Homogeneous product: In this market the producer produce similar type goods and they are identical. This similar and identical types of goods are produced.

V) No single firm and buyer is price decider: As there is no market power and everybody produce almost identical goods and the price is considered as given because a single firm or buyer is a price taker.

VI) Perfect mobility of factors: Here the factor of production like labour is perfectly mobile. The labour can move from one firm to another or one industry to other.

For example we can say a market of corn there is many sellers and many buyers. A large number of sellers sell corn and a large number of buyers buy.

A market with perfect information and knowledge we can say share market, where both buyer and seller has the full knowledge about the market.

A fish market can be said as a market where entry and exit is free. From a open source anybody can enter into the market to catch fish and any time can go out from the market.

The energy market is a kind of market is a homogeneous market. Every energy is same and there is difference in the energy type or we can say milk is a type of homogeneous product.

A market will be price taker for seller and buyer where let suppose government is providing a service or selling a product. Then the price of that service or product is same for seller and buyer. Nobody can change the price and nobody has any control over price.