PERFECT COMPETITION

•     PREFECT COMPETITION
MAIN FORMS OF MARKET
MICRO ECONOMICS/BUSINESS ECONOMICS

•     DR SHASHI AGGARWAL

•     MEANING

•     REFERS TO A MARKET SITUATION WHERE THERE IS LARGE NUMBER OF BUYERS AND SELLERS. THE SELLER SELL HOMOGENEOUS PRODUCT AT A UNIFORM PRICE . THE PRICE IS NOT DETERMINED BY THE FIRM BUT BY THE INDUSTRY.

•     LEFTWITCH,” PERFECT COMPETITION IS A MARKET IN WHICH THERE ARE MANY FIRMS SELLING IDENTICAL PRODUCTS WITH NO FIRM LARGE ENOUGH RELATIVE TO THE ENTIRE MARKET TO BE ABLE TO INFLUENCE MARKET PRICE.

•     MRS JOAN ROBINSON,” PERFECT COMPETTION PREVAILS WHEN THE DEMAND FOR THE OUTPUT OF EACH PRODUCER IS PERFECTLY ELASTIC.

•     FEATURES

1.       LARGE NUMBER OF BUYERS AND SELLERS

2.       HOMOGENEOUS PRODUCT

3.       INDEPENDENT DECISION MAKING

4.       FREE ENTRY AND EXIT OF FIRMS

5.       PERFECT KNOWLDEGE

6.       ABSENCE OF TRANSPORT /TRANSACTION COSTS

7.       PROFIT MAXIMISATION

8.       NO GOVT REGULATION

9.       PERFECT MOBILITY

•     PURE COMPETITION

•      WHEN TWO CONDITONS OF PERFECT COMPETIION LIKE PERFECT KNOWLEDGE AND PERFECT MOBILITY ARE LACKING BUT ALL OTHER ARE FULFILLED THEN IT IS CALLED PURE COMPETITION.

1.       LARGE NUMBER OF BUYERS AND SELLERS

2.       HOMOGENEOUS PRODUCT

3.       INDEPENDENT DECISION MAKING

4.       FREE ENTRY AND EXIT OF FIRMS

5.       ABSENCE OF TRANSPORT /TRANSACTION COSTS

6.       PROFIT MAXIMISATION

7.       NO GOVT REGULATION

•     PRICE DETERMINATION UNDER PERFECT COMPETITION

1.       UNDER PERFECT COMPETIION ,PRICE OF A COMMODITY IS DETERMINED BY INDUSTRY AND NOT BY SELLER OR FIRM

2.       AGGREGATE OF THE FIRM IS CALLED INDUSTRY

3.       EQUILIBIRIUM PRICE IS DETERMINED WHERE AD=AS

•     PRICE DETERMINATION

•     PRICE DETERMINATION

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•     PRICE DETERMINATION

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•     EXPLANATION

•     EQUILIBIRUM PRICE IS DETERMINED WHERE DEMAND AND SUPPLY INTERESECT EACH OTHER AND HERE DEMAND IS EQUAL TO SUPPLY. PRICE IS DETERMINED BY INDUSTRY . FIRM IS PRICE TAKER AT GIVEN PRICE IT COULD SELL AS MANY UNITS IT WANTS TO BE.

•     EFFECT OF CHANGE IN DEMAND ON PRICE

•     SUPPY REMAING UNCHANGED IF DEMAND INCREASES PRICE RISES AND IF DEMAND DECREASES PRICE FALLS.

•     EXPLANATION

•     EQUILIBIRUM PRICE IS DETERMINED WHERE DEMAND AND SUPPLY INTERESCT EACH OTHER AT E POINT. P IS THE EQUILIBIRUM PRICE AND OQ IS THE EQUILIBIRUM OUTPUT.  NOW DEMAND RISES AND NEW DEMAND CURVE IS D1 AND IT INTERSECT AT E1 THEN PRICE IS DETERMINED AT P1 AND IF THE DEMAND FALLS TO D2 AND THEN NEW PRICE WILL BE DETERMINED P2.

•     EFFECT OF CHANGE IN SUPPLY ON PRICE

•     D

•     EFFECT OF CHANGE IN SUPPLY ON PRICE

•     IF DEMAND REMAIN UNCHANGED THEN PRICE WILL BE DETERMINED BY CHANGES IN SUPPLY. IF SUPPLY IS MORE THEN PRICE WILL BE LESS AND IF SUPPLU IS LESS THEN PRICE WILL BE MORE.