Why study perfect competition, if it rarely exists?
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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Producers and consumers drive the economy of a
a. Communist economic system b. market economic system c. command economic system d. traditional economic system
Potential output is the
a. maximum rate of output that can ever be achieved. b. highest rate of output that has ever been achieved in the past. c. maximum sustainable output level consistent with the economy's resource base and current institutions. d. the rate of output present when the general level of prices is unstable.