b) In perfectly competitive markets, what is the meaning of 'PERFECT KNOWLEDGE '?

Expert Solution

The Actual implication of perfect knowledge in perfectly competitive markets is that both all consumers and sellers know the market price of the Product in which they are dealing so the market price would remain same everywhere in the market. It means that no single producer can charge a higher price anywhere in the market because if he does, buyers would know it and they would buy from that seller only buy all the sellers but there is one twist. At the same time, other sellers would also know that one of seller has Decreased its price, then they all would Decrease their price until the price everywhere is again same. So, the Essence of perfect knowledge in perfectly competitive market is the that the market price would remain same everywhere in the market.

This also implies that there is also perfect knowledge to the buyers and sellers of factors of production of the price of factors of production. By the same logic, it also means that the price of factors of production is also same throughout the market.

Rahul Sunny answered 8 months ago

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