This document discusses the key features of a perfectly competitive market including:
- A large number of buyers and sellers engaged in buying and selling homogeneous products at a single market price.
- Free entry and exit from the market with no barriers to entry.
- The market price is determined by the equilibrium between supply and demand in the short run.
- Supply can be either perishable goods that must be sold immediately or non-perishable goods that can be stored.
- Durable goods are goods that do not get used up immediately but wear out over time, and sellers have a reserve price below which they will not sell.
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Perfect Competition Market
1. Perfect Competitive Market…
• The perfect competition is a market structure where a large number
of buyers and sellers are present and all are ingaged in the buying and
selling of the homogeneous product at a single price prevailing in the
market.
2. Features of Competitive Market
Large Number of
Buyers and
Sellers
Free Entry and Exit
No
Transportation
Cost
Homogeneous
Product
Perfect
knowledge of
Prices and
Technology
Large Number of
Firms
3. Determination of Market Price.
• Market price is determined by the equilibrium between demand and
supply in a market period or very short run.
What will be The Nature of Supply curve in a
Market Period?
• Two cases are prominent;
• 1. Perishable goods
• 2. Non- perishable goods
4. Price determination of charitable goods:
HERE,
MPS=market period supply
curve
DD=market demand curve
5. What is Durable goods?
Durable goods are those goods that are not comsumed
immediately, but which gradually wear out during the
period they are used.
What is Rserve Price?
The price at which a seller will refuge to sell is called the resever
price.
6. The Market Price of Durable commodities
In the figure SRFS`is the supply curve
OP =price
OQ=total amount of supply
DD=Demand curve
R=Equilibrium point.
In the supply curve SRFS` the FS` is the vertical
straight line.
7. SHORT RUN PRICE DETRMINATION UNDER
PERFECT COMPETITION:
HERE,
OX horizontal axis indicates the output of
the commodties,
OY vertical axis indicates the price of that
commodity, MSC=Market Period Supply
Curve,
SRSC=Short-run Market Supply Curve,
E is the equilibrium point
8. Long –run price determination in increasing
cost industry:
HERE, MSP=MARKET
PERIOD SUPPLY
CURVE,SPC=SHORT PERIOD
SUPPLY CURVE,LPS=LONG
PERIOD SUPPLY CURVE,P is the
equilibrium point
9. Long-run price determination in decreasing
cost industry:
HERE,
MSC=MARKET PERIOD SUPPLY
CURVE,
SS=SUPPLY CURVE,
LPS=LONG PERIOD SUPPLY CURVE