ECONOMICS ASSIGNMENT

M.B.A.(P.M.)

Ans1): stock market is a good example of perfect competition in some aspects

such as follows:
1) Participants in the stock market range from small individuals investors to large
traders, similar to the perfect competition where there is large numbers of
buyers and sellers.

2) Large number of rational profit maximisers actively competing with each

other, trying to predict future market values.

3) Price of individual security is determined by market forces which is the

property of perfect competition.
4) In short run it is difficult for company to enter or exit which is contradictory
to perfect competition.
5) In long run traders can exit or enter the market, this means free entry and
exit from industry.
6) Capital owned by (93%) single large player is huge in comparison to (7%)
small investors.
7) Stock market activity is increasingly becoming more centralized,
concentrated.
 Ans2): The characteristics of perfect competition in the stock market setting
are:

1) Participants in the stock market range from small individuals investors to large
traders, similar to the perfect competition where there is large numbers of
buyers and sellers.

2) Large number of rational profit maximisers actively competing with each

other, trying to predict future market values.

3) Price of individual security is determined by market forces which is the

property of perfect competition.
4) In long run traders can exit or enter the market, this means free entry and
exit from industry.

Ans3): some basic aspects of perfect competition which is essentially absent in

stock market are:
1) In short run it is difficult for company to enter or exit which is contradictory
to perfect competition.
2) Capital owned by (93%) single large player is huge in comparison to (7%)
small investors.
3) Stock market activity is increasingly becoming more centralized,
concentrated.