Imperfections and the Need for Allocation Policy

  • Peter Bohm


Economic theory has been able to demonstrate that under certain conditions, (a) an economy with perfect competition on all markets has equilibrium positions (that is, situations where demand equals supply on every market), (b) every equilibrium position is socially efficient or Pareto optimal (that is, no individual can be better off without someone else being worse off) and (c) every conceivable Pareto-optimal situation (read: income distribution) corresponds to such an equilibrium position. This so-called perfect market economy constitutes the formal basis for propositions about the advantages of perfect competition. However, it is in no way intended as even an approximate description of reality. It nevertheless constitutes a practical analytical point of departure for discussing reality, that is to say, the implications of deviations from the conditions of the perfect market economy.


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Copyright information

© Peter Bohm 1987

Authors and Affiliations

  • Peter Bohm
    • 1
  1. 1.StockholmSweden

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