When the economist speaks of a perfect market, this is usually only a fictional idea. Because a perfect market would exist if it was homogeneous and balanced.
Conditions for a perfect market
The characteristics or conditions of a perfect market:
- Products and services must be homogeneous
- complete transparency for all market participants
- Market participants make rational decisions
But all of these conditions are only one component. Also the Pricing in the market plays a very crucial role.
Price formation on the perfect market
A perfect market would do without arbitrage opportunities. This means that the demand as well as the supply would always run parallel to each other. There would be no overhangs or insufficient supply, so that supply and demand could not determine the price.
All providers who are represented in a perfect market would not make any profits. The applies Equilibrium pricewhich cannot be changed by the providers. Likewise, the buyers, i.e. the buyers of the products offered, would have no chance to change the equilibrium price. So you couldn't pay less than the price would allow.
Because such a market is more or less the opposite of that Market economy the perfect market will never exist in this form and it remains a theoretical model of economics.
a notice - The stock exchange is considered to be the market that comes closest to a perfect market.