Question

What is perfect competition? Explain the concept and its features.

What is meant by Perfect competition? State its features.

Explain the meaning of Perfect competition with its features.

Answer 1

Perfect competition is an ideal and imaginary concept of a market rather than an actual market. According to Mrs. Joan Robinson, “Perfect competition prevails when the demand for the output of each producer is perfectly elastic.”

A perfectly competitive market is one in which the number of buyers and sellers is very large. All the buyers and sellers are engaged in buying and selling a homogeneous product without any restrictions. Moreover, both buyers and sellers possess perfect knowledge of market conditions.

The following are the features of perfect competition:

1. A large number of buyers and sellers: Under perfect competition, there are a large number of buyers and sellers. The number of sellers is so large that no individual firm has control over the market price of the commodity.
2. Free entry and exit of firms: There is no restriction on the entry and exit of firms. This free entry and exit of the firms ensure that no firm earns either abnormal losses or abnormal profits in the long run.
3. Homogeneous product: The product of each and every firm in a perfectly competitive market is a perfect substitute for other products in terms of quantity, quality, colour, size, features, etc.
4. Perfect knowledge: In a perfectly competitive market, the buyers are aware of the prevailing market price of the product at different places and the sellers are aware of the prices at which the buyers are willing to buy the product.
5. Perfect mobility of factors of production: In perfect competition, the factors of production are perfectly mobile. Such mobility implies that there is optimum utilization of the factors of production.
6. Absence of transport cost: In perfect competition, it is assumed that there is no transport cost. This further ensures that there is a uniform price in the market. 
7. Single price: A single uniform price prevails under perfect competition which is determined by the interaction of demand and supply.
8. No government intervention: Laissez-faire policy is an important feature of perfect competition. It means there is an absence of Government intervention in economic activities.