Answer to Question #75190 in Microeconomics for SHEHZAAD

Question

Explain SEVEN (7) conditions necessary for a perfectly competitive market to exist.

Answer 1

Conditions necessary for the existing of the perfect competition:
1. A big number of sellers and buyers. In this case, the influence of each participant of market relations is negligible. In other words, every seller has a very small share of market supply. Every buyer represents a tiny percentage of the total demand.
2. Homogeneous product. Identical characteristics of the good and the same services associated with it.
3. There are no barriers for firms to enter or exit the market.
4. Firms are price takers. The price on identical products is the same on the perfectly competitive market. There are no selling or transportation costs.
5. There is no government regulation. Interventions like subsidies, tariffs, licensing and others restrict the competition.
6. The factors of production move without any limitations from one organization to another. There is a high mobility of labor, capital, land and entrepreneurship.
7. Perfect knowledge about the current and future market conditions. There is no uncertainty of the further development in the market