only a fraction of the total market supply. As such an individual
seller cannot influence the market price.
Similarly, there are a
large number of actual or potential
buyers and each individual
buyer's demand is just a fraction of the total market demand.
Therefore, no single buyer can influence the market price. Hence,
the market price is determined by the interaction between demand
and supply in the entire industry and both seller's and buyers are
therefore
'price-takers'.
2. Homogeneous Product:
The product sold in the market is homogeneous, that is
identical
in all respects such as shape, size, colour, taste design
quality etc. The products are perfectly substitutable for each other
and therefore no buyer is attached to a particular seller. Hence,
the price of the products is also uniform and no seller will charge a
higher price for the same commodity.
3. Free entry and exit:
There exists freedom for sellers
and buyers to enter and
leave the market at any time without restrictions of any type. If
sellers find it profitable, new firms will enter the market and if they
incur losses they leave the market.
4. Perfect Knowledge:
Both buyers and sellers should have perfect knowledge
about
the price of the commodity, the quality of the commodity,
cost of production, the supply position and other market trends. As
a result, no buyer will pay a price higher than the market price and
no seller will charge a price lower than the market price. The
ignorance of either buyer or seller cannot be exploited. Therefore,
a single price would prevail in the entire market.
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