Forms of Markets

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FORMS OF MARKET
PERFECT COMPETITION
FEATURES AND IMPLICATION:-
1) VERY LARGE NUMBER OF BUYERS AND SELLERS:- The number of buyers and sellers is so large that none of them can influence the prevailing price in the market. Each buyer and seller buys or sells a very insignificant proportion of total supply of the commodity in the market. This shows the ineffectiveness of the seller or buyer in influencing the market price. The price is determined by interaction of market demand and market supply in the whole industry. For this all the buyers and sellers are involved, but once set, each firm or buyer has to accept it. IMPLICATION →as share of each seller in total market supply is so small that no single seller can influence the price..similarly for the large no of buyers i.e a buyer’s share in total demand is so small that no buyer on his own can influence the price. So both the buyer and sellers are price-takers. 2) HOMOGENEOUS PRODUCT: - products in the market are homogeneous i.e. they are identical in all respects like quality, colour, size, weight, design etc. They are perfect substitutes of each other so the buyers treat all the products of the all the firms in the industry as identical and therefore are willing to pay the same price. Due to homogeneity of goods, purchase of commodity is a matter of chance not of choice. The product being homogeneous, no individual seller can charge higher price or he will lose his customers. This ensures uniform price in the market. As such, the cross elasticity of demand of such products is infinite. IMPLICATION → of product being homogeneous is that all firms have to charge the same price for the product; otherwise no one will buy from firm selling at a higher price i.e. price of good is uniform. 3) FREEDOM OF ENTRY AND EXIT:- it means there are no artificial barriers or natural obstacles in the way of new firms wishing to enter the industry. Buyers are free to enter or leave the market at any time they like. New...
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