Perfect Market and Market Imperfections

The determination of whether a market is perfect or is otherwise afflicted with varied imperfections is an important one in the evolution of economic theory as well as in the development of the structures underlying Western civilization. The perfect market entails a structure of production and exchange in which optimal outcomes, both private and social, are attained efficiently and simultaneously without the need for intervention by nonmarket actors. In other words, the price and profit signals in the market lead automatically to production efficiency at minimum unit cost and to allocative efficiency at the most desired mix of output. In a perfect market, the self-interested behavior of individuals responding to price signals is sufficient to direct society as it answers the basic questions of what ...