Commerce

In this category, articles related to commerce (general topics) will be available

Perfect Competition | Features of Perfect Competition| Market in the Economy

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Perfect Competition | Market in the Economy | Features of Perfect Competition

Perfect Competition Market :- is a market where large number of sellers sell identical products to various buyers.

Features:-

  • Homogeneous product :- there is no product differentiation and no distinctive features of the products.
  • Large number of buyers and sellers :- every firm is a price taker and sell the products at the going price. Buyer is also a price taker
  • Transportation Cost :- there is no transportation cost. Price paid by a buyer is equal to the price received by the seller.
  • Knowledge of Market :- every buyer and seller has full knowledge of the prevailing price of the product.
  • Economic Rationality:- every buyer and seller is motivated by his own decision to buy or sell the products.
  • Free Entry & Exit :- new firm can enter the industry and existing firm can close down and leave the industry, there is no restriction.
  • Perfect Mobility of factors of production :- factors of production and workers can freely move from one firm to another.
  • No Government Regulation :- There is no government regulation or interference in terms of the tariff, subsidies, etc.

Difference among Perfect Competition, Monopoly and Monopolistic Competition

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Perfect CompetitionMonopolyMonopolistic Competition
There is large number of buyers and large number of sellers (i.e. firms in industry).Only singer seller is available, no difference between firm and industry.There is large number of buyers and sellers (i.e. firms in industry).
Firms can freely enter and exit the market.There are strong barriers to entry.Firms can freely enter and exit the market.
Firms are price takers.Monopoly is a price maker (full control over price).Some control over price.
Homogeneous (identical) products are available in perfect competition which are perfect substitutes. No close substitutes.Differentiated products which are close substitutes, but not perfect substitutes.
As the name suggest, perfect competition, Competition among firms is perfect.No competition.Imperfect competition.
In such type of market, price is equal to marginal cost.In monopoly, price is higher than marginal cost.In this market, price is higher than marginal cost.
There is Infinitely elastic demand curve is seen in perfect competition.There is downward sloping and highly inelastic demand curve in monopoly.There is downward sloping and more elastic demand curve in monopolistic competition.
Under perfect competition, MR and AR represented by the same curve.Under monopoly, MR starts at the same point as AR.Under monopolistic competition, MR starts at the same point as AR.
There is no supernormal profits in the long run.There is supernormal profits both in the short run and long run.There is no supernormal profits in the long run.
There is no consumer exploitation.consumers can be exploited. Consumers are influenced through competition i.e. price and non price.

Depreciation of Currency Vs. Devaluation of Currency

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Depreciation of Currency: means decrease in the value of country’s currency in comparison to other country’s currency due to market forces (Demand & Supply).

In Floating/Flexible Exchange Rate System :- if $ = 70 and if it increases from 70 to 74. Here, the value of currency of India will be decreased or price of foreign currency will be increased. [No Govt./Central Bank’s action].

Devaluation of Currency :- means decrease in the value of country’s currency (India) by monetary authority (Central Bank). [Govt. Intervention].

In Fixed Exchange Rate Regime: if $ = 70 and if it increases from 70 to 74. Here, export is cheap and import is expensive.

Appreciation of Currency Vs. Revaluation of Currency

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Appreciation of currency means increase in the value of one country’s currency in comparison to other country’s currency due to market forces (demand & supply).

Example:-

In floating/Flexible Exchange Rate Regime:- 1$ = 70, if $ rate decreases from 70 to 60. Here, value of India’s currency will be increased or price of foreign exchange will be decreased.

Revaluation of Currency :- means increase in the value of one country’s currency in comparison to other country’s currency due to Government intervention or by monetary authority (Central bank).

In fixed/Pegged Exchange Rate Regime :- 1$ = 70, if $ rate decreases from 70 to 60. Here, the value of India’s currency will be increased or price of foreign exchange will be decreased.

Import becomes cheap.

Commerce, Trade & Auxiliaries to Trade

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Commerce, Trade and Auxiliaries to trade

  • Commerce -includes two types of activities i.e. trade and auxiliaries to trade.
  • Trade-buying and selling of goods.
  • Auxiliaries to trade-activities that are required to facilitate the purchase and sale of goods. Example- banking, transport, insurance, communication, advertisement, packaging and warehousing.