Question

Write an essay of 500 words about the following

A. an explanation of first best- second best world (distortions and imperfections).

B: an explanation of first best - second best policies.

Answer 1

The first best equilibrium is based on a perfectly competitive market and it is assumed that there are no imperfections for distortions that are available or present. The second best equilibrium theory arises in a situation where whenever a market involves or includes one or more imperfections or distortions.
The first best equilibrium is a condition where all the situations of a perfectly competitive market are given. It means the situation of a large number of buyers and sellers where sellers are selling homogeneous commodities at a constant price. Homogeneous commodities are those commodities where all the sellers are selling the same level of quantity of a particular good means the goods are same in color, same in size, same in quantity, same in quality.
The perfect competition there is no imperfections are given under the first best equilibrium condition.
There is a situation of normal profit in the short run and long run and therefore all the sellers are able to earn only normal profit. The condition of a perfectly competitive market includes a feature of full knowledge about the market situation and it is only applicable when we take the assumptions and the first best equilibrium condition.
On the other hand the second best equilibrium condition arises under a market situation where there are one or more imperfections means there is a chance of competition in the market in the presence of one or more cells were selling close substitute of the commodity at a competitive price here sellers have a chance to earn more than normal profit in the short run.
This situation is best recognized in normal situations in all market conditions.
The explanation of first best and second best policies included a market distortion and the partial counter effect of the policies that best describe in all the market situations under all the conditions the short run equilibrium and long run equilibrium conditions are affected with the first best and the second best policies and therefore it is treated as a condition of normal to positioning market variables conditions.
The first best and the second best policies are best recognize as to change the shape of the market and the different dimensions and under the different policies it is a situation where the global market and the domestic Territories are involving various conditions on which the market conditions are based and this is the only reason why we use the word distortion because it simply means to change the shape of the market and to apply all such things that are necessary for a seller to enhance the capabilities of production consumption and distributions policies in the market it doesn't mean that market is related to a particular category means of a competitive market for an imperfect competition of market it means that are changing policies that is equally and effectively applicable in the market to enhance the capabilities of the sellers and buyers to enhance the sale and purchase activities in the market.
It is also recognized as a this formation of the market structure that's why the first best and the second best policy is important