Question

The welfare analysis of a perfect competitive market

Answer 1

Welfare implications of perfectly competitive markets is that it leads to a maximization of consumer satisfaction. With consumer incomes and tastes given, aggregate consumer satis­faction would be maximized because goods would be distributed among consumers according to their demands. It follows that in this market, there is freedom of entry and exit and buyers have full market information about prices. Therefore, perfectly competitive system guarantees the attainment of maximum social welfare.