Question

In your terms explain the characteristics of a "Perfect Competition and Why It Matters" conclude your explanation with question and an example.

Answer 1

A perfect competition is represented by specific characteristics. The first characteristics is that there are free entry and exit of the firm. It makes the firms to earn zero economic profit in the long run, even if the firms can earn positive or negative economic profit in the short run. The second characteristics is that products are homogeneous in nature. It means that products cannot be differentiated. The third characteristics is that firms are price takers in the market as buyers have all the bargaining power in the market. The fourth characteristics is that demand curve for the firm is perfectly elastic in nature. These characteristics make the market to be perfectly competitive market.

Perfect competition matters with its characteristics, because it achieves allocative and productive efficiency in the market. It makes products to be available with efficiency and at lower price.

For example, market for agricultural products in its original form, represent a perfectly competitive market and people as buyers have the bargaining power and sellers as producers are the price takers.