Explain, and Illustrate Using Graphs, Whether You Think a Perfectly Competitive Industry or a Monopoly Industry Leads to More Efficient Outcomes for an Economy
Explain, and illustrate using graphs, whether you think a perfectly competitive industry or a monopoly industry leads to more efficient outcomes for an economy.
RESEARCH ESSAY
Microeconomics is defined as a study of how economic decisions are made by individuals and groups along with the range of factors affecting those decisions. In relevance to this, the analysis of perfect competition and monopoly regarding efficiency is considered one of the most core basis to the understanding of Microeconomics. This paper argues that a perfectly competitive industry leads to more efficient outcomes for an economy than a monopoly does. In this essay, I will first define the concept of two market structure types and then go on to explore how they affect the level of efficiency and economic welfare. Alternatively, I will also bring up some exceptions by which this finding may not be as correct as thought.
The first section of this paper will briefly introduce the two main types of market structure. Perfect competition is a market that satisfies the conditions of having many buyers and sellers, firms selling identical products, having zero barriers to entry and having perfect information. A perfectly competitive firm is a price taker as it has no power of affecting the market price. In reality, perfect competition is only a theoretical model and it does not really exist in real-world market (Makowski 2001, 480; Ziebarth 2008, 3 and Pettinger N.Y, sec. 2) although there are some markets that can get slightly close to the previously discussed characteristics such as markets for organic food and currency markets. Despite this, perfect competition is still used as a benchmark since it displays high level of economic efficiency (Riley 2006, sec. 11, par. 1). With the second market structure, a firm is considered as a monopoly only when there is one seller providing certain goods or services with no close substitute and it can ignore other firms’ actions as it is a price maker.
RESEARCH ESSAY
Microeconomics is defined as a study of how economic decisions are made by individuals and groups along with the range of factors affecting those decisions. In relevance to this, the analysis of perfect competition and monopoly regarding efficiency is considered one of the most core basis to the understanding of Microeconomics. This paper argues that a perfectly competitive industry leads to more efficient outcomes for an economy than a monopoly does. In this essay, I will first define the concept of two market structure types and then go on to explore how they affect the level of efficiency and economic welfare. Alternatively, I will also bring up some exceptions by which this finding may not be as correct as thought.
The first section of this paper will briefly introduce the two main types of market structure. Perfect competition is a market that satisfies the conditions of having many buyers and sellers, firms selling identical products, having zero barriers to entry and having perfect information. A perfectly competitive firm is a price taker as it has no power of affecting the market price. In reality, perfect competition is only a theoretical model and it does not really exist in real-world market (Makowski 2001, 480; Ziebarth 2008, 3 and Pettinger N.Y, sec. 2) although there are some markets that can get slightly close to the previously discussed characteristics such as markets for organic food and currency markets. Despite this, perfect competition is still used as a benchmark since it displays high level of economic efficiency (Riley 2006, sec. 11, par. 1). With the second market structure, a firm is considered as a monopoly only when there is one seller providing certain goods or services with no close substitute and it can ignore other firms’ actions as it is a price maker.
References: Hubbard, Glenn, Anne Garnett, Phil Lewis and Tony O’Brien. 2010. Essentials of Economics. French 's Forest, N.S.W.: Pearson Australia. Layton, Allan P, Tim Robinson and Irvin B. Tucker. 2009. Economics for today. 3rd Asia Pacific ed. South Melbourne, Vic.: Cengage Learning. Lewis, Philip, Anne Garnett, Malcolm Treadgold and Kim Hawtrey. 2010. The Australian economy: Your Guide. 5th ed. Frenchs Forest, N.S.W.: Pearson Australia. Makowski, L. 2001. "Perfect Competition and the Creativity of the Market". Journal of economic literature 39(2): 479-535. ProQuest. McTaggart, Douglas, Christopher Findlay and Michael Parkin. 2010. Economics. 6th ed. Frenchs Forest, N.S.W.: Pearson. Pettinger, Tejvan. N.Y. “Efficiency Of Perfect Competition.” Economics Help. http://www.economicshelp.org/microessays/markets/efficiency-pc.html. Riley, Geoff. 2006. “Perfect Competition.” Tutor2u. http://tutor2u.net/economics/revision-notes/a2-micro-perfect-competition.html. Ziebarth, Bruce. 2008. “Perfect Competition and Market Failure.” Associatedcontent.com. http://www.associatedcontent.com/article/1287098/perfect_competition_and_market_failure_pg3.html?cat=3.