Whats are the characteristics of perfectly competitive market?

 Whats are the characteristics of perfectly competitive market?

A perfectly competitive market is a hypothetical market where competition is at its greatest possible level.  Neo-classical economists argued that perfect competition would produce the best possible outcomes for consumers, and society.

Key characteristics of perfectly competitive market

Perfectly competitive markets exhibit the following characteristics:

1.       There is perfect knowledge, with no information failure or time lags.  Knowledge is freely available to all participants, which means that risk-taking is minimal and the role of the entrepreneur is limited.

2.      There are no barriers to entry into or exit out of the market.

3.      Firms produce homogeneous, identical, units of output that are not branded.

4.      Each unit of input, such as units of labour, are also homogeneous.

5.      No single firm can influence the market price, or market conditions. The single firm is said to be a price taker, taking its price from the whole industry.

6.      There are a very large numbers of firms in the market.

7.      There is no need for government regulation, except to make markets more competitive.

8.      There are assumed to be no externalities, that is no external costs or benefits.

9.      Firms can only make normal profits in the long run, but they can make abnormal profits in the short run.



 Define perfect Competitive market

A perfect market is one where there is perfect competition. This is a model market. It implies absence of rivalry.

According to Boulding, “the competitive market may be defend as a large number of buyers and sellers all engaged in the purchase and sale of identically similar commodity, who are in close contact with one another and who buy and sell freely among themselves”.