Question

The free market can only work properly if the conditions of perfect competition are met. These conditions include perfect information, consumer sovereignty, certainty, no barriers to entry, and no externalities.

Choose two of those conditions, and write a short answer (between half a page and 1 page) for each of the following two questions:

1. In your own words, describe the two conditions of perfect competition that you chose, and why they matter for supply or demand to be accurate; and,
2. Discuss how the violation of each of those two conditions could create problems when trying to buy, or sell, health care.

Answer 1

a) The two conditions which i would refer are :-

1) certainity 2) no externalities

1) Certainity is the key feature of a perfect competitive market. The perfect competition imcludes a certain price, below which no buyer is ready to sell his products. It is well known by the buyer that the product has the minimum cost at which market will sell and therefore the price is also certain.

2) No externalities is the present in perfect competition. As Externalities are the cost of transaction that are beared by the person who is not even included in that transaction. These doesn't show the true cost of the product, but in perfect competition the prices are so low that there is no chance of any externalities.

b) The voilation of these terma will lead to unceratain and monoply in the market. As if there are unceratian prices the consumer will be confused and will not able to judge the vendor from where he should biy the product. And in other case if there are externalities then the price of product will increase in different ratios creating a chaos in the market.

Obviously the demand will decrease and the vendors will even not able to sell there products.