perfect competition market

1. Perfect competition
market
BUDDHA N. SHRESTHA

2. Market means a place where there are many buyers and
sellers with different products who are actively engaged in
buying and selling acts.
The price and level of production of a commodity depends
upon the market structure of its conditions.
Market structures
1. Perfect competition
2. Monopoly
3. Monopolistic competition
4. Oligopoly

3. Perfect competition market
A perfect competition market refers to the competition
among the sellers and buyers. Where are large number
of potential firms and sellers, and large number of
potential buyers with a homogeneous product and the
price of the product is determined by the market forces
in an industry.

4. Conti…
There is one price that prevails in the market. All firms sell
the product at the prevailing price.
According to Leftwitch, "Perfect competition is a market in
which there are many firms selling identical product with no
firm being large enough relative to the entire market so as
to be able to influence market price."
Examples of perfect competition:
Financial markets – stock exchange, currency markets, bond markets

5. Perfect competition market
a b c d e f g
a b c d e f g
sellers
buyers.

6. Symptoms of Competition Market
(1) Large number of buyers and sellers: There is a large number of
buyers and sellers of a commodity under perfect competition
(2) Homogeneous Product: the product sold by the various firms are
homogeneous.
(3) Absence of artificial Restrictions: non-existence of any artificial
restrictions on the demands, supplies, prices of goods and factors of
productions in the market. There must not be any external intervention
in price fixation and any controls on the product.
(4) Free entry and exit: The firms are free to enter or to exit from the
industry whenever they want to do so. Any firm can enter or leave the
industry at any time as there are no legal restrictions.

7. Symptoms of Competition Market
(5) Perfect knowledge about the market: There is perfect knowledge
on the part of buyers and sellers about market conditions. The buyers
and sellers are fully aware of the price prevailing in the market.
(6) Perfect mobility of the factors of production: It means all the
factors of production are perfectly mobile under perfectly competitive
market. Factors will move to the industry which pays the higher
remuneration.
(7) Non-Existence of transportation cost: A perfectly competitive
market also assumes that it is essential that there is no transportation
cost across different areas of the market.
8. Firms are profit maximizers.

8.  The goal of a competitive firm is to maximize the profit.
 This means that the firm will want to produce the quantity
that maximizes the difference between total revenue and
total cost.
Total Cost = Fixed Cost x Variable Cost
Total Revenue = Price x Quantity
Profit
Firms are profit maximizers.

9. In the perfectly competitive market, a single market price
determined by the forces of total demand and total
supply in market. Every seller or a buyer is a price taker.
agree Don’t agree
Rs.50 Rs.50
seller agree Rs.40 agree
buyer
Bargaining is the major weapon of price determine in the competition market.

10. How is the market price Determined

11. What happens in a competitive environment
 Other firms enter the industry to take advantage of profit
Supply increases – price falls
 Long run – normal profit made
Choice for consumer

12. Advantages of Perfect Competition:
• High degree of competition helps allocate
resources to most efficient use
• Price = marginal costs
• Normal profit made in the long run
• Firms operate at maximum efficiency
• Consumers benefit

13. Fact is that;
there is no perfect competition market in the world. It
is just a hypothetical concept. It is not possible to be
. BECOUSE it contains
Large area of market
Large number of seller and buyers
Same goods and commodities
 same quality of goods
Same purchasing power of buyers
How it can be possible ?

14. THANK YOU