Question

Perfect Competition is a model of which examples are few and far between. Yet economists love to discuss this model. Explain why.

Answer 1

It is true that perfect competition is a model which has limited number of examples cause in real world everything is complex. Even then in several models it is used as an example and economists love to discuss the model because it forms a perfect base for future discussion, this is the ultimate goal which the economists want to attain. They want to reduce price discrimination through monopoly as they think the market is highly inefficient.

In perfect competition, competition is at its highest possible level and it produces the best possible outcome for the consumers and the economy alike as everything is efficient and allocated. This proves as a benchmark for the economists as other models could be easily compared with this ideal model and innovative ways could be analysed in order to bring the market as close to this model as possible as it enhances social welfare.

There are limited chances of discrimination and resources are allocated efficiently. By showcasing the efficiency attained in this, economists are better able to make policy makers realise how imperfect competition is harmful for the society and economic growth. Thus economists try to make policies which increase perfect competition in some way so as to showcase the deficiencies in other models and highlight the importance of perfect competition for economic growth.