Why study perfect competition, if it rarely exists?
What will be an ideal response?
Perfect competition is the circumstance where the market performs best, demonstrating Adam Smith’s “invisible hand” in action. Each firm, acting in its own self-interest-the pursuit of maximum profit-ends up acting in society’s best interest; products are produced and sold at minimum average cost in the long run. Also, even if the conditions of the model are not fulfilled, firms may still act as if the assumptions held. So the model’s predictive power may extend beyond the cases of agricultural and stock markets.
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If Mark tries to purchase a new refrigerator in a perfectly competitive market, then
A) he will have a very limited ability to negotiate over the price. B) he will have only a few sellers available to him. C) he will see large differences in the types of refrigerators sold across sellers. D) he will find himself constantly haggling with sellers over the price. E) None of the above is correct.
A school of tuna swimming in the ocean is
A) nonexcludable and rival. B) excludable and rival. C) nonexcludable and nonrival. D) excludable and nonrival.