INTRODUCTION

The Father of Economics Adam Smith in his book “ The Theory of Moral Sentiments”, wrote about the main characteristics of human beings. According to him a human being is very selfish or possesses self-love as well as there exists an invisible hand. The concept of self- love in human being is one of the most important factor in “ the value theory” as well as in the development of market. [1]

Generally a human being carries out economic activities till a point where he thinks that what I am paying is equal to what I am receiving, Human being willingly trade or carry out exchange till he feels that what I am giving is less and what I am receiving is more, once he realises that what I am giving is equal to what I am receiving, he will stop further trade.

This is one of the most important philosophy of consumers and producers. Both the concept is based on selfish motives of maximising returns in terms of their efforts that is money. Since an economy consists of various economic agents with diverse interests, allocating resources optimally becomes an intricate task. Economic planners have two mutually opposing means to solve this allocation problem: planning versus competition. Which avenue will be adopted by the planners depends crucially on their value judgments.

WHAT IS A MARKET?

“Originally” says Jevons, : a market was a public place in a town where provisions and other objects were exposed for sale; but the world has been generalised so as to mean any body of persons who are in intimate business relations and carry on extensive transactions in any commodity.

In the words of Cournot, a French economist, “Economics understand by the term market not any particular market placec in which things are bought and sold but the whole of any region in which buyers and sellers are in such free intercourse with one another that the price of the same goods tends to equality easily and quickly.”

Thus, the essentials of market are:

1. A commodity which is dealt with.
2. The existence of buyers and sellers
3. A place, be it certain region, country or entire world.
4. Such intercourse between buyers and sellers that only one price should prevail for the same commodity at the same time.

PERFECT COMPETITION

Perfect competition is a theoretical market structure. Perfect competition is the world of price-takers. A perfectly competitive firm sells a homogenous product. It is so small relative to its market that it cannot affect the market price; it simply takes the price as give.

Under perfect competition, there are many buyers and sellers, and prices reflect supply and demand. Also, consumers have many substitutes if the good or service they wish to buy becomes too expensive or its quality begins to fall short. New firms can easily enter the market, generating additional competition. Companies earn just enough profit to stay in business and no more, because if they were to earn excess profits, other companies would enter the market and drive profits back down to the bare minimum.

Real-world competition differs from the textbook model of perfect competition in many ways. Real companies try to make their products different from those of their competitors. They advertise to try to gain market share. They cut prices to try to take customers away from other firms. They raise prices in the hope of increasing profits. And some firms are large enough to affect market prices. But the p