Question

Few markets in the real world have the characteristics of a perfectly competitive market. Does that mean that the predictions of the model of perfect competition are not very useful in predicting how markets in the real world work? Discuss.

For your answer support your views/opinions (with at least two scholarly references and mention the reference them ), and a word count of 400 words.

If not follow the instruction above will rate your answer with thumb down.

Answer 1

Perfect competition is a market situation which has more theoretical significance but in Economics it is a market situation in which purchasers and sellers do not have any rivalry visible to them and it is an impersonal competition with each other because their number is very large.Critics to the classical school of thought (Neoclassical school) argues perfect competition holds good theoretically as it helps both the consumers and society but it is an abstract because all real markets exists outside of the perfect competition and certain important obstacles prevent perfect competition emerging in the real economy.

In perfect competitive market as featured they sell identical product but in reality it may not be true like as simple example can be illustrated about selling of the mango juice,producers will vary in their given method of production,purification,product size and brand identity.Another example even helps to understand the role of perfect competition in purchase of lipstick as it is manufactured by firm using various primary ingredients found are wax,oil,alcohol and pigment but the final outcome is lipstick as a product but it varies with their brand, size and textures so selling of identical products is far from the arguments as given in the features of perfect competition.Another significant feature of perfect competition is freedom of entry and exit.But in real world even in international trade it may not hold good because it has its own restrictions or barriers like tariffs,quotas,custom duties,taxes ,protection policies and devices intiated by the government etc.Which in turn regulate and restrict the freedom of firms to enter and exit industries.

Austrian economist Fredrich Hayek and Czech economist Joseph Schumpter argued perfect competition significance does not exist as of imperfect Competition in the real world in long run which is even attributed for profit maximization.In the present world consumers are highly informative about the products and they have full knowledge about the products because of the research information online that they would trade in even can break the concept of perfect competition.Therefore perfect competition is just a myth because it has no relevance to reality.

References

Chopra P N,2011,"managerial economics",Kalyani publishers,New Delhi

Ahuja H L,2018,"Advanced Economic theory",S Chand and co,New Delhi