Economics - Perfect Competition

Topics: Economics, Supply and demand, Perfect competition Pages: 19 (4023 words) Published: January 24, 2015
Acknowledgement
First and foremost I thank Dr. Sham Abeyratne, the lecturer for the module Managerial Economics, for sharing his knowledge and for the guidance, support and advice given in order to make this assignment a success.

I also wish to thank my friends, family and fellow students for their encouragement and motivation.

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Executive Summary
The objective of this assignment was to understand, analyse and evaluate the theoretical economic concepts of Market Mechanism, Perfect Competition, Market Imperfections and Market Failure.
The report initially discusses the basic economic problem of Scarcity and introduces the economic systems which have been developed over time, such as the Traditional Economy, Market Economy, Command Economy, Mixed Economy, and Open and Closed Economies. The Market Mechanism has been discussed in detail, including an in-depth analysis of it’s features. The Price mechanism and its role in the Market system has also been discussed with appropriate graphical illustrations.

The concept of Perfect Competition, including its features, assumptions and behaviour has been analysed, along with the practical application of such a market in the real world, in the context of developed and developing nations.

The report also discusses the instances of Market Failure and its impact, with suitable practical examples. Finally, the report concludes with an assessment of the practical usefulness of these economic theories, and the government’s role in reducing its negative effects.

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Table of Contents
1.

Introduction ............................................................................................................................. 5

2.

Market Mechanism .................................................................................................................. 6

3.

4.

5.

2.1

Features of a Market Mechanism ..................................................................................... 7

2.2

Price Mechanism .............................................................................................................. 7

Perfect Competition ................................................................................................................. 8 3.1

Features of a Perfectly Competitive Market .................................................................... 8

3.2

Assumptions ................................................................................................................... 11

3.3

Benefits of a Perfectly Competitive Market ................................................................... 12

3.3.1

The Producer ........................................................................................................... 12

3.3.2

The Consumer ......................................................................................................... 13

Market Imperfections ............................................................................................................ 13 4.1

Developed Countries ...................................................................................................... 13

4.2

Developing Countries ..................................................................................................... 14

Market Failure and Constraints ............................................................................................. 15 5.1

Positive Externalities ...................................................................................................... 15

5.2

Negative Externalities .................................................................................................... 16

6.

Conclusion ............................................................................................................................. 17

7.

References...

References: 
D N Dwivedi, (2006), Microeconomics : theory and applications, New Delhi : Pearson
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