nie 3-1

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question 

  1. Perfect Competition is a model of which examples are few and far between. Yet economists love to discuss this model. Explain why.
  2. One of the criticisms of oligopolies is the adverse impacts these firms have on income distribution. Do you believe that is a valid criticism? Discuss with appropriate examples.


students response Perfect Competition and Oligopoly

1. An ideal market structure, that is what a perfect competition describes where there is a vast number of sellers and consumers of identical products. Under the conditions of a perfect competition, every seller should be selling the same quality of a product at a uniform price across the market hence, the absence of competition of between firms. Since there is perfect knowledge of the prices at which transactions are being carried on, and of the prices at which both parties are willing to buy or sell this provides as an excellent benchmark in terms of analysis of market structures. Additionally, there will be no barriers into entering or exiting the market in the long run and factors affecting production is efficiently allocated. Perfect competition is not encountered in the real world, it demonstrates a market structure that is most fitting, and economists love to discuss this model due to these assumptions.

Kumar, M. J. (n.d.) Perfect Competition: Meaning, Assumptions and Other Details Retrieved from: http://www.economicsdiscussion.net/perfect-competition/perfect-competition-meaning-assumptions-and-other-details/7150

2. A market structure where few large firms dominate the market is known as Oligopoly where it has a substantial level of control over the market and significantly affecting entry to the market. With lack in competition, oligopolist firms charges a higher price and produces less products compared to the standards of perfect competition. Moreover, oligopoly inefficiently allocates resources.  With high level of controls, concentration of wealth and income tends to be placed in few hands. By that, it is a valid criticism that oligopoly adversely impacts income distribution. 

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