Main Market Forms

MAIN MARKET FORMS
Market Perfect Competition

A place where buyers and sellers of a commodity The perfect competition refers to a market
in contact with each other effect the purchase and situation where large numbers of buyers and
sale of a commodity. sellers dealing in homogeneous products with the
price fixed by the market.
Meaning and Basis for classifying
market structure
Implications of Perfect
1. Numbers of Buyers and sellers: - Competition Market
● The number of buyers and sellers of a
commodity in a market indicate the influence 1. Very large numbers of buyers and sellers: -
exercised by them on the price of a commodity. ● In a perfectly competitive market there are
● In the case of large number of buyers and large numbers of buyers and sellers.
sellers, an individual buyer or seller is not in a
position to influence the price of a commodity Implication: - There are a large number of sellers
● If there is a single seller then he exercises and the share of each seller is insignificant in the
great control on the price of the commodity. total supply.
2. Nature of the commodity: - 2. Homogeneous Product: -

● If the nature of the commodity is ● The products sold in the market are
homogeneous then it is sold at a uniform price. homogeneous due to which the buyers do not
● If the commodity is differentiated in have to buy through only one seller.
commodity, then the price varies from seller to
seller. Implication: - The buyers treat the products as
● If the commodity has no close substitutes identical. Therefore, the buyers expect to buy
(Indian Railways), the seller can charge at the products at the same price for the products
higher prices for the commodity. of all the firms in the industry. There is no
chance for an individual firm to sell products at
3. Freedom of Movement of Firms: - higher prices.
● If there is a freedom on the entry and exit of
the firm then there will be a stable price in the 3. Freedom of entry and exit: -
market. ● In the perfect competition there is freedom of
● If there will be restrictions on the entry of entry and exit.
new firm and exit of the old firm then the
prices will be controlled by the sellers as there Implication: - Freedom of exit and entry signify
would be no competition. that there is no barrier in the entry and exit of
the firm. When the firms see a profit earning
4. Knowledge of market Conditions: - opportunity it enters the market. If the firm
● If the buyers and sellers have perfect faces loss, it can exit anytime.
knowledge of the market conditions, the prices
will prevail uniformly in the market. 4. Perfect Knowledge among the buyers and
● If there is imperfect knowledge of the market sellers: -
conditions then the sellers are in the position ● Perfect knowledge means that the buyer and
to change prices. seller is completely informed about the market
conditions.
5. Mobility of Goods and Factors of production: -
● If the factors of productions are freely Implication: - Its implication is that no firm in
moving from one place to another then the the industry can charge a higher price from the
price remains uniform. buyer for a commodity and no buyer needs to
● In the case of immobility in the goods and pay a higher price. It creates a uniform market
factors the prices may vary from seller to seller. price.
Demand Curve under Perfect
Competition
• Since each firm is a price taker, therefore
demand curve is Perfectly Elastic.
• AR = MR under perfect Competition Market

• The Y axis Represents the price of a commodity
and X axis represents the quantity of a
commodity.
• The demand curve under perfect Competition
is represented by a horizontal line parallel to
the x- axis.
• The line is parallel because under the perfect
competition market the price remains uniform.
Note: -
Q. Why AR= MR?
A. In perfect Competition market each
firm is a price take. Therefore, they
have to agree at the same price
determined by the market forces of
demand and supply. As a result,
uniform price prevails in the market. It
means, revenue from every additional
unit (MR) if equal to price (AR) of the
product.

Main Market Forms

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MAIN MARKET FORMS

Market Perfect Competition

2. Nature of the commodity: - 2. Homogeneous Product: -

• AR = MR under perfect Competition Market

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