competitive markets - pros cons and evaluation

what are the pros of competitive markets

allocative efficiency

productive efficiency

X efficiency

jobs

what are the cons of competitive markets

lack of dynamic efficiency

lack of economies of scale

cost cutting in dangerous areas

creative destruction

why is allocative efficiency a positive of competitive markets

consumers pay what it costs to produce the good, therefore prices are lower, consumer surplus is greater, higher quantity, better quality

why is productive efficiency a positive of competitive markets

average costs are minimised and all economies of scale are exploited, therefore costs are lower for consumers

why is x efficiency a positive of competitive markets

waste is minimised and firms are producing on the ac curve

why are jobs a positive of competitive markets

due to increase high levels of quantity, there will be more demand for labour as it is a derived demand, therefore living standards will go up

why is lack of dynamic efficiency a negative of competitive markets

firms are often left with normal profit and therefore cannot reinvest as much which will lead to a lack of innovation, meaning consumers do not receive benefits such as low costs and better quality goods

why is a lack of economies of scale a negative of competitive markets

firms may not have the potential for economies of scale meaning consumers do not receive the benefits such as lower costs

why is cost cutting in dangerous areas a negative of competitive markets

firms may cut costs from areas that are negative for society, such as wages or environmental measures

why is creative destruction a negative of competitive markets

in competitive markets many firms enter and exit the market all the time, meaning there can be a rise in unemployment and decrease in living standards

evaluate dynamic efficiency

it may still occur as firms may have just enough profit to reinvest

evaluate natural monopoly

in some markets a monopoly is better than competition

evaluate static or dynamic efficiency

depends on the good/service, for example in markets with necessities a monopoly is not desirable