By Sigrun WinklerOn Mar 14, 2019 Free Resume
Perfect competition establishes an ideal framework for establishing a market. But that market is flawed and has a couple of disadvantages. The first one is the absence of innovation.
Limited to zero profit margins means that companies will have less cash to invest for expanding their production capabilities. An expansion of production capabilities could potentially bring down costs for consumers and increase profit margins for the firm.
The relationship between demand and supply underlie the forces behind the allocation of resources. In market economy theories, demand and supply theory will allocate resources in the most efficient way possible. How? Let us take a closer look at the law of demand and the law of supply.
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