Monday, August 6, 2012

Is allocative efficiency found only in perfect competition, or can it also be found in other market structures?

Perfect competition is the only market structure in which
resources are allocated in a way that is completely efficient.  Of course, perfect
competition does not exist in any market in the real world, so there is no market in
which there is perfectly efficient allocation of
resources.


Other market structures are less efficient than
perfect competiton.  In other market structures, the lack of competion makes it so that
firms do not have to offer the lowest possible prices or produce the highest possible
quantities of the good or service they sell.  In other market structures, too little in
the way of resources is allocated to the production of a given good or service.  Buyers
are left wanting to buy more at lower prices than is possible in those market
structures.


Because of its unfettered competition, perfect
competion is the only market structure in which allocative efficiency can
occur.

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