Question

In: Economics

Explain, why Perfect Competition is regarded as the best market structure for the society?

Explain, why Perfect Competition is regarded as the best market structure for the society?

Solutions

Expert Solution

Before getting answer of this question let us understand the meaning of perfect competition-

It is a market structure type where

There are large number of buyers and sellers in the market

The price is decided only by the market forces that is demand and supply

Long term economic profit is zero

It is assumed that both buyers and sellers are perfect knowledge about the market

There are no barriers to entry and exit in the market

Now this market is called the best market structure for society

The main reason behind is that in this market the price making power is neither in the hands of buyers nor in the hands of sellers

It is totally decided by the market forces and second reason is that due to the no barriers of entry and exit in this market

This causes new players to enter in this market at any point of time and exit as well

This creates a competitive environment which is best for the consumers as well as for the sellers


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