Discuss in detail the characteristics of perfect and imperfect markets under the Number of sellers
The number of sellers is an important factor that determines whether a market is perfect or imperfect. Here are the characteristics of perfect and imperfect markets based on the number of sellers.
Perfect Markets:
1. Large number of sellers: In a perfect market, there are a large number of buyers and sellers. Each seller has a small market share and has no control over the market price.
2. Homogeneous products: In a perfect market, all sellers sell the same product, which is identical in quality, features, and performance.
3. Perfect information: Buyers and sellers have access to complete and accurate information about the market. This ensures that the prices are determined by supply and demand forces.
4. No entry or exit barriers: Any seller can enter or leave the market without any significant barriers. This ensures that the market is open to competition.
5. Price taker: In a perfect market, each seller is a price taker and accepts the market price. They have no control over the price and must accept whatever the market dictates.
6. Zero economic profit: In a perfect market, sellers earn zero economic profit in the long run. The market price equals the marginal cost of production, which means that sellers cover their costs but do not earn any extra profit.
Imperfect Markets:
1. Small number of sellers: In an imperfect market, there are only a few sellers who dominate the market and have significant market power. They may be able to influence the market price by controlling the supply.
2. Heterogeneous products: In an imperfect market, sellers may sell differentiated products that are not identical. This gives them some power to set prices based on the unique features and benefits of their products.
3. Imperfect information: In an imperfect market, there may be asymmetry of information between buyers and sellers. This can lead to inefficiencies and distortions in pricing.
4. Entry and exit barriers: Imperfect markets may have significant entry and exit barriers that prevent new sellers from entering the market or existing sellers from leaving. This reduces competition and can lead to higher prices and reduced consumer welfare.
5. Price maker: In an imperfect market, sellers may have some control over the price due to their market power. They may be able to set higher prices and earn extra profit.
6. Positive economic profit: Imperfect markets may allow sellers to earn positive economic profit in the long run, as they have some degree of market power and can charge higher prices. This can lead to reduced consumer welfare and inefficient allocation of resources.