Saturday, June 1, 2019

If real world markets can be made to resemble more closely the model :: Economics

If real world marts can be made to tally more than closely the model of perfect competition, economic efficiency ordain improve. Explain why Perfect competition is generally regarded as economically more efficient?Chris Simons============If real world markets can be made to resemble more closely the modelof perfect competition, economic efficiency will improve.a) Explain why Perfect competition is generally regarded aseconomically more efficient? (20 marks)The model of perfect competition describes market where at that place is ahigh degree of competition. The word perfect does not mean that thisform of competition produces ideal results or maximises economicwelfare in other words, the word perfect should not have anynormative overtones.A perfectly hawkish market must possess four characteristics.Firstly, there must be many a(prenominal) buyers and sellers in the market, none ofwhom is large enough to influence price. Buyers and sellers are stateto be price takers. This type o f market has many relatively smallfirms that supply goods to a large number of small buyers.There must be freedom of entry and exit from the industry. Firms mustbe able to establish themselves in the industry easily and quickly.Barriers to entry must therefore be low. If a firm wishes to ceaseproduction and leave the market, it must be free to do so.Buyers and sellers possess perfect knowledge of prices. If one firmcharges a higher(prenominal) price than the market price, the demand for itsproduct will be zero as buyers buy elsewhere in the market. Hence thefirm has to accept the market price if it wishes to sell into themarket (i.e. it must be a price taker).All firms must produce a homogenous product. There is no stigmatisation ofproducts and products are identical.There are very few industries in the world that approximate to thiskind of market structure. One that might is agriculture. Inagriculture there is a large number of farmers supplying the market,none of whom is large eno ugh to influence price. It is easy to buy afarm and set up in business. It is equally easy to sell a farm andleave the industry. Farmers on the whole possess perfect knowledge.They know what prices prevail in the market, for instance from the state press. Finally farmers produce a range of homogenous products.King Edwardss potatoes from one farm are indistinguishable from KingEdwardss potatoes from another. In Europe and in many countriesaround the world, farming is in certain instances not a perfectlycompetitive market. This is because governments may interfere in themarket, buying and selling to fix a price.Perfect competition is generally regarded as economically more

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