Perfect Competition:

To the economist, the term market generally refers to the various arrangements people have for trading with one another. The type of market structure within which a firm operates is determined by essential features or characteristics of the market, including the number of firms involved, the extent to which the products of different firms are diverse or homogeneous, and the ease of entry into and exit from the market.

The main types of market structure include perfect competition, monopoly, monopolistic and oligopoly. In this chapter, we consider perfect competition while monopoly, monopolistic competition and oligopoly are discussed in Chapters 8 and 9 respectively.

Basically, perfect competition refers to the market structure in which there is a large number of relatively small firms, each firm having freedom of entry into and exit from the industry. All firms produce homogeneous product and all market participants (buyers and sellers) have full knowledge of the situation in the market, especially about the present price and location of the product.