Question

Many make the argument that although perfectly competitive markets achieve the highest level of social welfare, because markets are never perfectly competitive, society is worse off from using market-based systems. Discuss whether you agree or disagree with this statement

Answer 1

I disagree with the statement, because it is conflicting, disjointed and it also lacks coherence. It is due to the reason that perfectly competitive market is a type of market structure only where social welfare is achieved. It means that it is only applied to certain industries or products where goods are homogenous in nature and firms are price take, with perfectly elastic firm level demand. But, it is only is market structure and it is not a market based system. At this point, the statement contradicts itself as it treats perfectly competitive market as market based system. But in reality, market based system is an economic system, applied to whole economy ( irrespective of the market structure) that relies on demand and supply forces. In this system, consumers demand and firms supply to operate the market. With the presence of some regulations by the government, this market based system can be free and fair competition where every small and large firm have the scope to operate and co-exist, as it happens in the USA.