Understanding Perfect Competition Market, Characteristics and Advantages

Understanding Perfect Competition Market, Characteristics and Advantages - On this occasion About Knowledge will discuss about Perfect Competition Market. Which in this discussion explains the definition of a perfectly competitive market, its characteristics, disadvantages and advantages briefly and clearly. For more details, see the following article.

Understanding 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 similar or similar. 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 prices. so that prices in the market are truly the result of agreement and interaction between supply and demand Request.

Although basically no single market in the world is absolutely perfect. However, one example of an approaching market is the rice market. This is because the shape, color and other appearances are relatively the same, and there are 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:

The goods being traded have homogeneous properties

Because it is homogeneous, this causes each of these goods to replace each other (substitution) with one another. Thus the buyer is free to buy from any seller. Meanwhile, the seller cannot determine a price that is different from other sellers because the goods being sold are not unique.

There are many sellers and buyers

There is no limit to the number of sellers that 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 because it cannot determine the price created in the market (price maker).

Buyers and sellers are free to enter and leave 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 a loss in selling in the market. Then the seller can easily stop his business.

Perfect information

Both the buyer and the seller have perfect information about the price, quality and also the quantity of goods available in the market. The existence of such 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 item from another seller who sells it at the prevailing market price

Factors of production can move freely

Because there are no barriers to entering the market. Then the seller also has the freedom to move the factors of production anywhere.

Advantages and Disadvantages of Perfect Competition

The following are the advantages and disadvantages of a perfectly competitive market, namely as follows:

Advantages of a perfectly competitive market

The advantages of a perfectly competitive market include the following:

• There cannot be price competition between sellers because the prices created in the market will be followed by all sellers.
• Perfect information belongs to both the seller and the buyer.
• Sellers can also move their factors of production at any time because there are no barriers to entering the market.
• Maximum efficiency in production.

Disadvantages of a perfectly competitive market

The disadvantages of a perfectly competitive market are as follows:

• 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.
• Do not encourage innovation because the technology or innovation made can be imitated by other companies.

This is the explanation about Understanding Perfect Competition Market, Characteristics and Advantages. Hopefully it can be useful and add to your insight. Thank you.