Question

What are the main assumptions for a perfectly competitive market? Briefly explain your answer.

Answer 1

Assumption of perfectly competitive market.

1) large number of buyers and sellers:- there are large numbers of buyers and sellers.each buyer and seller is so small as compared to market they it can not influence the price of the product.

2) homogeneous product:- all sellers sell homogeneous unit of a given product.

3) independent decision making:- buyers and sellers are free from any barriers with regard to their buying and selling of any product.

4) free entery and exit of firms:- any new firm can enter and any old from can withdraw from industry.

5) perfect knowledge:- buyers and sellers have perfect knowledge of relevant prices.

6)Absence of transport cost:- buyers and sellers incurs no cost in making exchanges.