Question

comment on the perfectly competitive model as a guide for ,public policy.

Answer 1

The perfectly competitive model is usually used as a benchmark for evaluation the performance of actual markets and acts as a guide for public policy. However economic theory gives two traditional objections to the perfectly competitive model as a guide to public policy. The first is the theory of workable competition as proposed by J.M. Clark that held that socially desirable industrial economic performance will not be achieved with an imposition of structural conditions of perfect competition. When an industry is characterised by economies of scale, several independent firms would reduce the economic efficiency; and imposition of any one of the conditions of perfect competition could not simultaneously be met thus can hinder the performance of economy. The second objection to the theory of "second best" by J.E. Meade which stated if one of the industries in an economy continues to exercise market power in economy then the society efforts for the attainment of perfect competition in other sectors through antitrust policy may impact counterproductive and reduce the total output's value