When people talk about the merit of Adam Smith\'s \"invisible hand,\" \"laissez

Question

When people talk about the merit of Adam Smith's "invisible hand," "laissez faire," and how government should leave the market alone and it is only then the economy will work at its the best, the market they are referring to (whether or not they know it) is the perfectly competitive.

But how common is perfect competition really in real life?

What were the common or are the common examples of perfect competition? And think about whether they satisfy the criteria of perfect competition. If they do, do you think these constitute the majority or minority of markets we interact with in the real world? If they don't, in what ways do they fail to qualify? If even the typically used examples do not meet the criteria, what does it say about the prevalence of perfect competition in the real world and, in turn, the validity of the arguments above? Does that mean that the government has its justification for meddling with the markets all the time? Where do we draw the line and how do we determine a healthy balance?

Explanation / Answer

The invisible hand theory assumed market is perfectly competitive with no hidden informations . In reality , there are various problems like incomplete information that leads to private gaining for some of the players .There assymetry of information that does not allow market to exsits freely .Monopoly and oligopoly are other imperfect market conditions that exist in the market. Example of perfect competition is where there is uniform pricing in the industry like price of toothpaste , soaps where there are close substitutes are available.

Perfect competition exists in minority in real world because close substitutes may or may not available the problem is uniform pricing .This gives rise to monopoly power in the market , leading to exit of other small players who cannot compete competitively . Therefore , perfect competition allows continous entry and exit so this form of mrket structure is fluctuating . Due to imperfect market structures there are new and differentiated products which impact demand of the consumers . Yes , government intervention is indeed important to protect market from such imperfections and externality .Like protecting domestic market from international competition through tariffs and taxes along with using strict guidelines and rules governing malpractices in the market exchanges .

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