Perfect Competition Market

Perfect Competition Market

1. Perfect competition is a theoretical market structure.
2. All firms are selling identical products.
3. All firms are price takers which means they cannot influence the market price of their product.
4. Market share has no influence on prices since the price is determined by supply and demand.
5. Buyers have complete information about the product being sold and the prices charged by each firm.
6. Resources (such as labors) are perfectly mobile.
7. Firms can enter or exit the market without any restrictions.

The Government Should Intervene in The Perfect Competition Market?

As a free country like Taiwan, the government is trying to do as few regulations or interruptions as they can. But sometimes, there are always some reasons the government should intervene or not. Most countries intervene in some specific market for multiple reasons such as national security, public health, avoid crime or fraud. However, even these restrictions seem to be positive, there are always some side effects that occur. The intervention is sometimes necessary and assists the market to increase the quality of the products or services. 

Reasons to Intervene

Most governments have a combination of many different objectives when they intervene in the market. 

Social Welfare

Without regulation, businesses can produce negative externalities without consequence. This all leads to diminished resources, stifled innovation, and minimized trade and its corresponding benefits. 

To Improve Variety and Quality

Choices are the basic power to move the economics forward. For instance, many Japanese railway companies are owned by private. If they are operating exactly the same lines and services, they don't have to compete with each other, they just have to operate like zombies. But if the government intervene in the market and regulate with the basic rules, the railway companies will follow up the steps to improve their services. Suppose the government regulates that all railways have to purchase insurance for their customers, those companies will now have to upgrade in order to stay in the market.

National Security

This is one of the most common reasons for governments to intervene in a perfect market since it is reasonable for a government to do it. For political reasons, it is also understandable. For instance, in the national defense industry, if firms can enter or exit the market without any restrictions, those secret data will be easy to out exposed.

For Macroeconomic

Governments are supposed to intervention to overcome prolonged recessions and reduce unemployment. Firms can enter or exit the market without any restrictions mean that the workers are at high risk. 

Public Goods

In a free market, public goods such as law and order and national defense would not be provided because there is no financial incentive to provide goods with a free-rider problem (you can enjoy without paying them). Therefore, to provide public goods like lighthouses, police, roads, it is necessary for a government to pay for them and out of general taxation.

Reasons for Do Not Intervene

Free market economists argue that government intervention should be strictly limited as government intervention tends to cause an inefficient allocation of resources.

Wrong Decisions

Governments are possible to make the wrong decisions and influenced by political pressure groups, they spend on inefficient projects which lead to an inefficient outcome.

Personal Freedom

Government intervention is taking away individuals' decisions on how to spend and act. The economic intervention takes some personal freedom away.

Reference

Hayes, A. (2020, February 5). Understanding Perfect Competition. Retrieved from https://www.investopedia.com/terms/p/perfectcompetition.asp

OpenStax College. (2016). Principles of economics. http://cnx.org/contents/69619d2b-68f0-44b0-b074-a9b2bf90b2c6@11.330

Boundless. (n.d.). Boundless Economics. Retrieved from https://courses.lumenlearning.com/boundless-economics/chapter/government-intervention-and-disequilibrium/

Pettinger, T., & Wes. (2020, April 30). Should the government intervene in the economy? Retrieved from https://www.economicshelp.org/blog/5735/economics/should-the-government-intervene-in-the-economy/