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EFFICIENT: The state of resource allocation the exists when the highest level of consumer satisfaction is achieved from the available resources. Competitive markets, absent of any market failure and especially market control by either side, is efficient. In particular, this feat is accomplished when the price buyers are willing and able to pay for a good--based on the satisfaction obtained--is equal to the price sellers need to charge for a good--based on the opportunity cost of production. In other words, the value (satisfaction) of stuff given up to get a good is the same as the value (satisfaction) of the good produced. Satisfaction won't increase by producing more of either.
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                           PERFECT COMPETITION, REALISM: Perfect competition is an idealized market structure that does NOT exist in the real world. While some real world industries might come relatively close to one or two of the four key characteristics of perfect competition, none matches all four sufficiently that they can be declared PERFECTLY competitively. Some industries come close on the large number of small firms and the identical product characteristics. A few industries have relatively good, although not perfect, information about prices and technology. However, almost all industries fall far short of the perfect mobility characteristics. Perfect competition is NOT intended as a description of real world industries. It is designed as a idealized benchmark that can be used to evaluate real world industries. The extremely restrictive characteristics that make up perfect competition (perfect "this" and perfect "that") create a market structure that efficiently allocated resources. If the real world economy was actually populated by nothing but perfect competition, then resources would be efficiently allocated. It would not be possible to reallocate resources in any way that would generate any greater satisfaction of wants and needs.Real world market structures (especially oligopoly and monopolistic competition), all of which fall short of the idealized characteristics of perfect competition, can then be compared against the perfectly competitive benchmark. The fun part of economic analysis is then to see how and where particular industries fall short and the degree to which each of these specific characteristics contribute to the lack of efficiency. Consider Phil the zucchini grower. As one of gadzillions of zucchini growers, each producing identical zucchinis, Phil would seem to be operating in a perfectly competitive industry. But is he... really? - First, consider the large number of growers characteristic. While there are gadzillions of zucchini growers, Phil does not compete with every zucchini grower in the nation. Because zucchinis are perishable and costly to transport, Phil's market is likely confined to his hometown of Shady Valley. In this case, he might be one of only a few hundred zucchini producers. Being one of a few hundred provides significantly more market control that being one of gadzillions.
- Second, consider the identical product characteristic. If Phil provides "service with a smile" and offers only the plumpest, juiciest, ripest zucchinis for sale, then buyers might prefer to buy Phil's zucchinis over those of other zucchini growers. In the view of the buyers, Phil's zucchinis are not identical to the other zucchinis in the Shady Valley zucchini market.
- Third, consider the perfect resource mobility characteristic. While Phil can easily exit the Shady Valley zucchini market by not planting any more zucchinis, there are barriers to entering the market. In particular, a zucchini grower needs a chunk of land upon which to grow zucchinis. While most homeowners in Shady Valley could easily clear a plot by the back fence, landless apartment dwellers or the homeless lack this opportunity. The cost of entering the zucchini market might be low, but it is not zero.
- Fourth, consider the perfect knowledge characteristic. A lot of folks are completely clueless when it comes to growing zucchinis. Are the seeds planted by a full moon in March? How far apart are the seeds planted? Do zucchinis grow on trees? Is it necessary to irrigate? How much and what kind of fertilizer is added? Are zucchinis harvested (or picked) when they are green, or yellow, or some other color? Moreover, what is the going price of zucchinis? Is it really $2.50? So many questions, so few answers. And certainly not perfect knowledge.
 Recommended Citation:PERFECT COMPETITION, REALISM, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2023. [Accessed: December 6, 2023]. Check Out These Related Terms... | | | | | Or For A Little Background... | | | | | | | | | And For Further Study... | | | | | | | | | | Related Websites (Will Open in New Window)... | | | |
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ORANGE REBELOON [What's This?]
Today, you are likely to spend a great deal of time at a crowded estate auction looking to buy either a pair of blue silicon oven mitts or a coffee cup commemorating the 2000 Olympics. Be on the lookout for broken fingernail clippers. Your Complete Scope
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Much of the $15 million used by the United States to finance the Louisiana Purchase from France was borrowed from European banks.
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"Every man must decide whether he will walk in the light of creative altruism or in the darkness of destructive selfishness." -- Martin Luther King, Jr., clergyman
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