Question

In: Economics

Which is more common in the modern economic world and why: perfect competition of monopolistic competition?...

Which is more common in the modern economic world and why: perfect competition of monopolistic competition?

Do students benefit from a perfectly competitive markets?

Solutions

Expert Solution

Perfect competition has certain features like a number of sellers selling homogenous goods which are a perfect substitute for each other. There are easy entry and exit in the market. Every consumer in the market knows everything about the market.

The monopolistic market condition includes the features that the goods sold in the market are slightly differentiated from each other there are a number of sellers in the market and there are easy entry and exit from the market.

In the modern economic world, we have a monopolistic competition more prevalent than the perfect competition because the sellers sell their goods which are not homogenous but have several prices and non-price differentiation. The sellers have some excess capacity with them and they have some control over their price which makes there demand curve slopes downward.

Students will definitely benefit more from the perfectly competitive market than a monopoly market because in a perfectly competitive market the consumer surplus is the maximum and market is most efficient.


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