Question

Using diagrams and numerical examples please answer - If competition also known as perfect competition rarely exists in the economy, then why study such a model? Should we study “ideal types” even though they may not be duplicated in the real world economy? (NOTE: Consider Plato’s Republic and his use of ideal types in the “realm of the Forms”). Students are encouraged to supplement answers with numerical examples and diagrams

Answer 1

Plato Generally evoke his ideas in poetic manner. His ideas follows the reality. According to him the non-physical things postulates the most real world.

Ideal types is the assumption of different economists in regard to their study. They show the different conditions at a point of time with the given resources that may occur in an economy. Sometimes model are the only source of gaining knowledge.

Now we see the case of perfect competition there are certain condition or say requirements of perfect competition as follows:-

1. All the firms are price takers.

2. Sell homogeneous product, example- vegetables.

3. Have limited market share.

4.Free entry and exit of the firm.

But, all the above situation are rarely being completed for perfect competition market. Everything have some specifications gor example company of tooth , they too have different ingredients, brand, available in different sizes at different rate. Every product have differentiation.

No economist believe that perfect competition exists in real world. However neoeconomists still believed that perfect competition is useful to the economy. Many debates among the economist had taken place. But if we refer to the ablve statements we can conclude that it is unrealistc and does not link to reality of an economy.