REALISM OF PERFECT COMPETITION

The assumptions of perfect competition are obviously at variance with the conditions which

actually exist in real world markets.  Some markets approximately conform to individual assumptions, for example, the stock exchange is characterized by a fairly free-flow of information but the information requires expertise to grasp.  However no markets exactly conform to the assumption of the model, with peasant agriculture probably the nearest to the mark.

We however study the model of perfect competition to enable us to see:

• How competition operates in the real world situation, within a highly simplified model.

• The advantageous features of perfect competition which governments may wish to encourage in real world markets.

• The disadvantageous features of perfect competition which the governments may wish to avoid.

• A standard against which to oil the degree of competition prevailing in a given market. We can discuss how closely a specific market resembles the perfectly competitive ideal

• For the student attempting a serious study of economics, a study of the perfect market is essential since no understanding of the literature of micro-economics over the century can be achieved without it.

• On a rather more mundane level, students will find themselves confronted with questions on perfect competition in examinations.