Perfect competition

Perfect competition

Anx Imaginary Conditions of Perfect Competition 

Classical economist were of the

 vi That perfectcompetition is a practical concept and the price of a commodity can be determined on basis (Modern economists are of the view that perfect competition is only an imaginary concept practical life. perfect competition is not found in any market because the conditions which should satisfied for perfect competition, are not satisfied in any market) 

Following are the conditions which are not satisfied in practical business life .

 Large Number of Buyers and Sellers: 

The concept of perfect competition is based upon the assumption that there should be a large number of buyers and sellers in the market, but in practical life. this condition is never satisfied Number of buyers and sellers in all the markets is imited and the price of the commodity is bound to be influenced by their activities 2.

 Agreement among Sellers :

 Perfect competition is based upon the assumption that there should be no agreement of any type among sellers, but in practical life, it is found that there are certain agreements amopg sellers. Generally, such agreements are found in respect of price and; thus there is lack of free determination of price. 

3. Homogeneity of Product: 

Perfect competition is based upon the assumption that the product of all the sellers is almost identical, but in practical life, it is found that this condition is also not satisfied. Product of different sellers is different from that of each other in one way or the other. 

4. Free Entry and Exit of Firms : 

Perfect competition is based upon the assumption that the entry and exit of firms is free, but in practical life, it is found that it is not so.(New firms cannot enter into the market so easily . 

S. Perfect Mfobility of Factors of Production : 

Another essential condition of perfect competition is that there is perfect mobility among the factors of production, but in practical life, this condition is also not satisfied. The factors of production are not so mobile is assumed .

 V6. Perfect Knowledge of Market Conditions :

 Perfect competition assumes that all the buyers and sellers have perfect knowledge of market conditions, but it is not a practical assumption, because there is a fairly large number of buyers and sellers who do not have perfect knowledge of market exiting firms cannot leave market so easily) conditions. 

vi. Government Interference : 

An important condition of perfect competition is that there should be no interference of Government in the business and economic activities of the country but this condition is also not satisfied. The fact is that Government interferes in the economic activities through several ways. Above study makes it clear that perfect competition is only an imaginary concept because the conditions on which perfect competition is based, are not satisfied in practical life. Therefore, there is no existance of perfect competition in practical life. Importance of the Study of Perfect Competition Above study makes it clear that perfect competition does not exist in practical life. It raises a question why is it studied? These couses can be explained as follows 

1. Helpful in Understanding the Reality:

Though there is no existence of perfect competition in practical life but it is helpful in understanding and reality of market conditions. Thus the knowledge of perfect competition is helpful in understanding and solving the economic problem of the country 

2. Knowledge of an Ideal Economy:

Study of perfect competition is helpful in knowing an ideal economy which can be helpful for the whole society.

3. Knowledge of the Causes of Lack of Perfect Competition:

 Knowledge of perfect competition is helpful is knowing the causes of absence of perfect competition. Under perfect competition the business and industrial firms get normal profit only but in the absence of perfect competition, they can earn abnormal profit. 

V4. Helpful in the Study of Imperfect Competition :

 Knowledge of the conditions of Perfect Competition is very helpful in the study of Imperfect Competition. Imperfect Competition is the market situation which lies between Perfect Competition and Monopoly.

 5. Knowledge of Imperfections: Knowledge of perfect competition is helpful in establishing the imperfection of market conditions. Actual market conditions are compared with the conditions of perfect competition and the nature and extent of market imperfections is established Conclusion:

 Thus, it can be concluded that though perfect competition is not a practical concept. It is only an imaginary market situation but the study of perfect competition is very helpful in understanding and solving the problems of an economy.