question_answer

Explain the implications of the feature 'large number of buyers' in a perfectly competitive market.

Or

Explain the implications of the feature 'homogeneous products' in a perfectly competitive market.

 

Answer:

The implication of large number of buyers in a perfectly competitive market is that no individual buyer can affect the market price for a commodity. In a perfect competitive market the number of buyers is so large and each individual buyer purchases only a small portion of the total output. As a result, no single buyer can influence the prevailing market price. He can only decide the quantities of the commodity to purchase and cannot influence the existing price.

Or

The implication of the existence of homogeneous products in a perfectly competitive market is that there exists uniform price in the market. The output of all the sellers in the marker are similar and identical to each other in terms of quantity, quality, colour, size, features, etc. This indicates that the buyers are indifferent between the products of the different firms.

In such a situation, if any single firm attempts to change a price that is slightly higher than the market price, then all its consumers will shift their price towards the products of other firms and the firm that raised the price will lose its consumers.

Thus, the existence of homogeneous products enforces the uniformity of price charged by different firms.