Question

Explain why economists generally argue that perfect competition is the most desirable market structure. Your answer should reflect what economists argue. Whether you agrees with the view held by economists is immaterial to this question: explain the economic argument.

Answer 1

In Perfect Competition there are many small firms competing with each other, products are homogeneous. Firms are price takers and there is lot of competition. The quantity produced is very large and prices are going to be very less as compared to monopoly. This is very beneficial for consumers as they will have to pay less prices.

In perfect competition the demand curve is a staright line horizontally which means price is equal to marginal revenue. This is present in every market structure that where MR is equal to MC the profit is maximized. At this point Average cost curve is tangential to this point and cut the average cost curve at its munimum which makes the production efficient, thus proving to be beneficial for suppliers also.

The perfectly competitive market is the most relevant model for actual government economic policies. The insights we gain from studying the perfectly competitive market are directly applicable to real markets, even though they are not perfectly competitive.