Which of the following is not an essential condition of pure competition ?

Question

Accepted Answer

The correct option is 3:

Pure competition is a subset of perfect competition, characterized by three fundamental conditions: a large number of buyers and sellers, a homogeneous product, and the freedom of entry and exit for firms. These three conditions are sufficient to ensure that no single firm has the power to influence the market price, thus making every firm a "price taker." The *absence of transport cost* is typically cited as one of the additional conditions necessary to define *perfect* competition (along with perfect knowledge and perfect mobility of factors), but it is not considered an essential, core requirement for the existence of *pure* competition itself, which is a stricter theoretical concept. Therefore, while relevant to the broader concept of perfection, it is not a prerequisite for *pure* competition.

The incorrect option is 1:
Homogeneous product (or identical product) is a defining feature of pure competition. If products were heterogeneous, firms could differentiate themselves and gain some degree of price control, breaking the core tenet of pure competition.

The incorrect option is 2:
Freedom of entry and exit means firms can join or leave the industry without barriers. This condition is essential to ensure that in the long run, firms earn only normal profits, as supra-normal profits would attract new firms, driving the price down.

The incorrect option is 4:
The existence of a large number of buyers and sellers is critical so that the action of any single market participant (whether a buyer or a seller) is negligible relative to the total market. This atomistic structure ensures that no one can unilaterally affect the price.