Perfect Competition Market - Equilibrium

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Meaning and Definition of Market Market generally means a place or a geographical area, where buyers with money and sellers with their goods meet to exchange goods for money. In Economics market refers to a group of buyers and sellers who involve in the transaction of commodities and services.
Characteristics of a market
1. Existence of buyers and sellers of the commodity.
2. The establishment of contact between the buyers and sellers. Distance is of no consideration if buyers and sellers could contact each other through the available communication system like telephone, agents, letter correspondence and Internet.
3. Buyers and sellers deal with the same commodity or variety. Since the market in economics is identified on the basis
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Thus the sellers in the perfect competitive market are price- takers and quantity adjusters.
2. Homogeneous Product
The products produced by all the firms in the perfectly competitive market must be homogeneous and identical in all respects i.e. the products in the market are the same in quantity, size, taste, etc. The products of different firms are perfect substitutes and the cross-elasticity is infinite.
3. Perfect knowledge about market conditions
Both buyers and sellers are fully aware of the current price in the market. Therefore the buyer will not offer high price and the sellers will not accept a price less than the one prevailing in the market.
4. Free entry and Free exit
There must be complete freedom for the entry of new firms or the exit of the existing firms from the industry. When the existing firms are earning super-normal profits, new firms enter into the market. When there is loss in the industry, some firms leave the industry. The free entry and free exit are possible only in the long run. That is because the size of the plant cannot be changed in the short run.
5. Perfect mobility of factors of production
The factors of productions should be free to move from one use to another or from one industry to another easily to get better remuneration. The assumption of perfect mobility of factors is essential to fulfil the first condition namely large number of producers in the market.
6. Absence of
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