Question

The late Nobel Prize-winning economist George Stigler once wrote, "the most common and most important criticism of perfect competition... [is] that it is unrealistic." Source: George Stigler, "Perfect Competition, Historically Contemplated," Journal of Political Economy, Vol. 55, No. 1, (February 1957), pp. 1-17. Despite the fact that few firms sell identical products in markets where there are no barriers to entry, economists believe that the model of perfect competition is important because
A. economists prefer studying theoretical markets instead of actual markets
B. it is a benchmark-a market with the maximum possible competition—that economists use to evaluate actual markets that are not perfectly competitive.
C. all markets eventually become perfectly competitive O D. this is the type of market that our business laws protect and promote

Answer 1

Answer:

B. it is a benchmark-a market with the maximum possible competition—that economists use to evaluate actual markets that are not perfectly competitive.

Explanation:

In a perfect market information is equally available to all players in the market and as such there is no undue advantage by any of the players.

Market forces are therefore controlled by forces of demand and supply. No one entity has the power to control the market.

This is a theoretical situation as all market in real life are imperfect.

However economists prefer to use the perfect market because it is used as a benchmark of what a market should be with perfect competition.

Real markets are compared to the perfect market to see how effective they are.