Essay on Perfect Competition In the economy, particularly within the broad equilibrium theory

In the economy, particularly within the broad equilibrium theory, a perfect market has also known as an atomistic market, which is described by a number of idealizing circumstances, cooperatively named ‘perfect competition.’ This model has clearly defined that a market will able to reach an equilibrium, whereas the supply amount for every single product or else service, as well as the workforce will be equal with the demand quantity at the recent price.

On the other hand, accuracy which means as the situation or quality of being exact, error-free or defect, or also could be described as correctness. Actually, some economy experts have mentioned that in actual life, this perfect competition market structure, up till now, still has not existed in the world yet. The reason is due to the criteria of a perfect competition such as (Witte, 2015):

·         All companies trade an identical product

·         All companies are considered as price takers, in which they are unable to influence their product’s market price

·         There is no influence made by the market share on prices

·         The buyers have already accomplished 'perfect' information - whether in the past, present, or in the future – around the product being traded along with the prices provided by every company

·         There are perfectly static resources in the context of workforce

·         The companies are able to both access and also exist the market without any cost at all

Thus, with the fact that all the actual markets that exist today are unable to meet the entire criteria above, then it is fair to say that, even though the ‘perfect competition’ will definitely contain a great accuracy in its practice, but still, there are only highly competitive or liquid markets for commodity products such as wheat or oil, that appeared to be almost ‘perfect competition’ practice in the real world.

Another case occurs in normative which generally defines to be related to an evaluative principle. Normative is actually describes as the marvel within our society of labeling some activities or results as good or bad ones. In the context of the perfect market competition, the normative flow has been considered as a bad one for economic growth. There are some reasons that have appeared to be the cause of this such as (Forssbaeck & Oxelheim, 2014):

·         The development and growth in perfect competition is, in the end, are driven by the amount of innovation

·         People will definitely innovate something in case if they have enough incentives to do the innovation

·         The resource for an incentive to make innovation derived from the economic revenues

·         The profits will only occur at the time when a company or an innovator has some control or power in the market

Thus, there has been always a misunderstanding about the definition of ‘perfect competition’ with ‘free markets.’ However, from the detail descriptions above, it is clearly far to say that perfect competition is a totally different meaning with a free market. Be that as it may, this perfect competition still unable to be practiced in the real world.

References of Perfect Competition

Forssbaeck, J., & Oxelheim, L. (2014). The Oxford Handbook of Economic and Institutional Transparency. Oxford University Press.

Witte, H. (2015). Sustainable Market Economy. LIT Verlag Münster.