Perfect markets, do they exist Essay Example | Topics and Well Written Essays - 2000 words

Perfect markets, do they exist - Essay Example Fundamentally speaking, the three salient market situations are monopoly, oligopoly and perfect competition. A monopoly is a market situation characterized by a single seller, similar products and many buyers. In a monopoly, the seller commands a major influence over the price of the product. An oligopoly is a market system that has few firms, homogeneous products and multiple buyers. In an oligopolistic market, the products usually have high investment costs that make the entry of new players in the market utterly difficult if not impossible. Contrary to a monopoly or an oligopoly, perfect market is a system defined by very different set of parameters. According to Lim Chong Yah, "Perfect competition is a market situation where there is a large number of buyers and sellers, a homogeneous product, free entry of products into the industry, perfect knowledge amongst buyers and sellers of existing market conditions and free mobility of factors of production among alternative uses (1981)." The question that often attracts the attention of the students of economics is that is perfect market a pragmatic and observable reality. A thorough catechism on the given line of query necessarily calls for a basic understanding as to what a perfect market is. The essential features of a perfect market are: 1. Perfect Rationality - All the participants including the buyers and the sellers tend to be perfectly rational and economic men. 2. Large Number but Small Size of Buyers and Sellers - In a perfect market, the number of buyers and sellers is very large. However, the potential of the respective buyers and sellers is so small that none of them has a discernable influence over the demand, supply and price of the commodity being sold. 3. Homogeneous Products - A perfect market is usually associated with homogeneous products so that the buyers have no reason as to prefer the product being sold by any particular seller. 4. Perfect Knowledge - In a perfect market, all the buyers and sellers have a perfect knowledge of the price of the product prevailing in the market at a given time. Therefore, in a perfect market there exists no uncertainty as to the price of the commodity being sold. 5. Free Entry and Exit of Firms - In a perfect market, there exist no social, financial or legal restrictions hampering the entry of a new firm in the market or the exit of any old firm from the market. 6. Free from Checks - A perfect market is free from checks in the sense that the buyers and the sellers are free from all types of restrictions governing the buying and selling of a commodity in the market. Such checks may include government restrictions and agreements between the buyers and the sellers regarding the quantity, price or the production of a commodity. 7. Perfect Mobility - One basic assumption associated with a perfect market i