√ Definition of Perfect Competition Market, Characteristics and Advantages
Definition of Perfect Competition Market, Characteristics and Advantages - On this occasion About Knowledge will discuss about Perfect Competition Market. Which in this discussion explains the meaning of perfect competition market, its characteristics, disadvantages and advantages briefly and clearly. For more details, see the following article.
Definition of Perfect Competition Market, Characteristics and Advantages
The definition of a perfectly competitive market is a market where the number of sellers and buyers (consumers) is very large and the products or goods offered or sold are of the same or similar type. Examples of goods sold in this form of market are rice, wheat, coal, potatoes, and so on.
Definition of Perfect Competition Market
A perfectly competitive market is a market in which buyers and sellers cannot influence price. so that the price in the market is really the result of an agreement and interaction between supply and demand request.
Although Basically there is no single market in the world that is absolutely perfect. However, one of the examples of markets that are approaching is the rice market. This is because the shapes, colors and other appearances are relatively the same, and there are too many sellers and buyers.
Features of Perfect Competition Market
There are several characteristics that distinguish a perfectly competitive market from an imperfect market. So, here are some of its features:
Goods that are traded have homogeneous properties
Because it is homogeneous, this causes each of these goods to replace one another (substitution) for one another. Thus the buyer is free to buy from any seller. Meanwhile, sellers cannot determine prices that are different from other sellers because the goods sold are not unique.
There are many sellers and buyers
There is no limit on the number of sellers who can be in the market, as well as the number of buyers who buy in that market.
Buyers and sellers act as price takers
The large number of sellers and buyers causes sellers and buyers to have the nature of being price takers. This is due to the inability to determine the price created in the market (price maker).
Buyers and sellers are free to enter and exit the market
There are no sanctions or prohibitions for each buyer to buy in a perfectly competitive market. Sellers can also enter and close their business at will. For example, if the seller feels that he has experienced a loss in selling in that market. Then the seller can easily stop his business.
Perfect information
Both buyers and sellers have perfect information about the price, quality and also the quantity of goods available on the market. The existence of this perfect information causes the seller will not charge a higher price than other sellers for the same item.
If the seller does this, the buyer will leave the seller. As well as buying the same goods from other sellers who sell them according to the prevailing market price
Factors of production can move freely
Because there are no barriers in entering the market. So the seller also has the freedom to move his factors of production anywhere.
Advantages and Disadvantages of Perfect Competition Market
The following are the advantages and disadvantages of a perfectly competitive market, namely as follows:
Advantages of perfect competition market
The advantages of this perfectly competitive market include the following:
- There cannot be price competition between sellers because the price created in the market will be followed by all sellers.
- Perfect information owned by both the seller and the buyer.
- Sellers can also move their factors of production anywhere because there are no barriers to entering the market.
- Maximum efficiency in production.
Disadvantages of perfect competition market
The disadvantages of a perfectly competitive market include the following:
- Products that have homogeneous properties make buyers have no choice. We can say that this type of market limits consumer choices so that they cannot achieve maximum satisfaction.
- Does not encourage innovation because the technology or innovation carried out can be emulated by other companies.
Thus the explanation about Definition of Perfect Competition Market, Characteristics and Advantages. Hopefully it can be useful and add to your insight. Thank You.
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