Equilibrium Of A Perfectly Competitive Market

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Properties of the Equilibrium of a Perfectly Competitive Market

Several central properties of the perfectly competitive market equilibrium deserve to be pointed out. These properties are the primary reasons why many economists (normatively) view a high level of competition as a good thing.

  • The equilibrium is efficient. The market price will be at the same levelas the long-run average cost of production. There is consequently no other way to produce the same quantity of goods that is cheaper. There is, in other words, no waste of resources.
  • All firms have normal profits, i.e. no profits. The consumers, consequently, pay only what the production costs.
  • Total utility is maximized Note also that these results, that are positive for society, are achieved without any form of central planning or ruling. This phenomenon, that the resources automatically are allocated such that these results are achieved, is often called the invisible hand.


However, remember that to reach these results, we have assumed a perfectly competitive market.

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