Competitive Markets and Economic Efficiency

Pages: 2 (680 words) Published: December 22, 2012
Competitive market and economic efficiency/Competitive strategies according to market share

Today competition is known as a contest between individuals, groups, animals for territory, a niche, or a location of resources. It arises whenever two or more parties strive for a goal which cannot be shared. Competition is also in the market; therefore it’s named competitive market. Let’s start by describing a competitive market. It’s a market with a large number of buyers and sellers, such that no single buyer or seller is able to influence the price or any other aspect of the market - no one has any market control.

Here you can see a competitive market model.
Competitive Market

The market model presented here depicts a typical competitive market that has achieved equilibrium. The market demand curve is labelled D and the market supply curve is labelled S. Competition among buyers forces the market price up to the maximum demand price on the demand curve. Competition among sellers forces the market price down to the minimum supply price on the supply curve. A competitive market is efficient because equilibrium is achieved where the demand price and supply price are equal. Competition on the demand side forces buyers to buy a good at the maximum demand price that they are willing and able to pay. Competition on the supply side forces sellers to sell the good at the minimum supply price that they are willing and able to accept. Equality between the demand and supply prices means that the economy cannot generate any greater satisfaction by producing more of one good and less of another.

Now let’s talk about economic efficiency. In economics, the term economic efficiency refers to the use of resources so as to maximize the production of goods and services. An economic system is said to be more efficient than another if it can provide more goods and services for society without using more resources. In absolute terms, a situation can be...
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