Question

what are the characteristics of a perfect compitition?(principles of economics)

Answer 1

Characteristics of a perfect competition:

-- Large number of buyers and sellers: The numbers of buyers are so many that an individual buyer buys a very small part of the market supply. In similar way, a single seller supplies a very tiny part of the total output.

-- No individual control over the market supply and price: A competitive firm is described as “a price-taker, not a price-maker” because sellers have no control over market supply and market price

-- An identical or a homogeneous product: In a perfectly competitive market all the sellers supply an identical product

-- Perfect knowledge: Both sellers and buyers have a perfect or full knowledge relating to the prevailing price in the market

--No buyers’ preferences: There is no preference of buyers of any particular seller for the product

-- Free entry and free exit of firms: The new firm are allowed to freely enter the industry or an existing firm can freely leave the industry in the long duration.

--Perfect mobility of factors: The factors of production such as capital or labour can freely move into the industry or freely go out of the industry