Question

Bring out the features of perfect competition.

Answer 1

According to Joan Robinson, “Perfect competition prevails when the demand for the output of each producer is perfectly elastic. It is an ideal but imaginary market. 100% of perfect competition cannot be seen.

Features of the perfect competition:

1. Large number of buyers and sellers:
   Each individual buyer buys a very very small quantum of a product as compared to that found in the market. This means that he has no power to fix the price of the product. He is only a price-taker and not a price-maker. As the number of sellers is large the seller is also a price–taker.
2. Homogenous product and uniform price:
   The. products are homogenous in nature and are perfectly substitutable. All the units of the product are identical. Therefore a uniform price prevails in the market.
3. Free entry and exit:
   In the short run, if the very efficient producer earns super normal profits, new firms enter the industry. When a large number of firms enter, the supply would increase, resulting in lower prices. If an inefficient producer incurs a loss, the loss incurring firms quit the market. So the existing firms could earn more profit as supply decreases.
4. Absence of transport cost: 
   The prevalence of the uniform price is also due to the absence of the transport cost.
5. Perfect mobility of factors of production:
   As there is perfect mobility of the factors of production, uniform price exists. As they enjoy perfect freedom of mobility the price gets adjusted.
6. Perfect knowledge of the market:
   All buyers and sellers have a thorough knowledge of the quality of the product, prevailing price, etc.
7. No government intervention:
   There is no government regulation on the supply of raw materials and in the determination of price etc.