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 Form 3 Business Studies lessons on product markets

Meaning and the main features of perfect competition

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Answer Text:
Perfect competition:
-Is a product market, where there are many buyers and sellers dealing with homogenous products.
Main features of perfect competition:
-There are many buyers and many sellers- this ensures that no single buyer or seller influences that market.
-free entry and exit of firms into and out of the market
-There is perfect mobility of factors of production-this ensures that resources are optimally allocated.
-There are no transport costs-this ensures that prices do not vary due to regional differences.
-The products are homogenous- this means that units produced are identical so that buyers have no preference between different units.
-There is perfect knowledge about prices, quality and other market conditions on the part of the buyers and sellers.