Answer to Question #274081 in Microeconomics for lakshika

Question

Explain the characteristics of perfect competitive market.

Answer 1

Task #274081

Characteristics of a perfect competitive market.

1. There are many buyers and sellers in the market-a perfect competitive market is characterised by the many producers and consumers that exist in market. Because there are so many purchasers, each one purchases a very small portion of the market supply. Similarly, a single seller contributes only a small percentage of total output.
2. Each company produces a similar product— all goods in a fully competitive market are regarded perfect substitutes, and the demand curve for each of the small, individual firms participating in the market is perfectly elastic.
3. Firms are price takers, which means that if one tries to raise its price, no one will buy its goods. Instead, customers would purchase from a competitor at a lower cost.
4. There are no barriers to entry into or exit from the market-firms can freely enter and leave a perfect competitive market without any restrictions.
5. Buyers and sellers have access to perfect information about price, utility, quality, and production methods of products.
6. There are no fees associated with transactions. In a completely competitive market, buyers and sellers pay no expenses when exchanging goods.
7. Every producer makes a minor contribution to the market. The supply curve is unaffected by their own output levels and in the long run the producers earn zero economic profits.
8. Factors of production, such as labour and capital, have perfect mobility, meaning they can freely enter and exit the sector. This is required to maintain a suitable balance between a commodity's demand and supply.