Question

The perfectly competitive market theory doesn’t explain the real world, and there aren’t any perfect markets, so studying them is a waste of time. Do you agree with this statement? Why or why not?

Answer 1

Answer:-

I agreed with that...

The reason behind that first I have to explain the Requirements of a Perfect Competition and these are

• All firms sell an identical product.
• All firms are price-takers.
• All firms have a relatively small market share.
• Buyers know the nature of the product being sold and the prices charged by each firm.
• The industry is characterized by freedom of entry and exit.

Because these five requirements rarely exist together in any one industry, perfect competition is rarely (if ever) observed in the real world. For example, most products have some degree of differentiation. Even with a product as simple as bottled water, for example, producers vary in the method of purification, product size, brand identity, etc. Commodities such as raw agricultural products, although they can still differ in terms of quality, come closest to being identical, or having zero differentiation. When a product does come to have zero differentiation, its industry is usually concentrated into a small number of large firms, or an oligopoly.