Perfect Competition No external parties (such as the Government) regulate the price, quantity, or quality of any of the goods being bought and sold in the market. In addition, free competitive markets require an enforceable private property system and a system of contracts and production.

Perfect Competition In such markets, prices rise when supply falls, inducing greater production. Thus, prices and quantities move towards the equilibrium point, where the amount produced exactly equals the amount, buyers want to purchase.

Thus, perfectly free markets satisfy three of the moral criteria: justice, utility, and rights. That is, perfectly competitive free markets achieve a certain kind of justice, they satisfy a certain version of utilitarianism, and they respect certain kinds of moral rights.

TWO PRINCIPLES The movement towards the equilibrium point can be explained in terms of two principles: The principle of diminishing marginal utility. The principle of increasing marginal costs. When a buyer purchases a good, each additional item of a certain type is less satisfying than the earlier ones. Therefore, the more goods a consumer purchases, the less he will be willing to pay for them.

The more one buys, the less one is willing to pay The more one buys, the less one is willing to pay. On the supply side, the more units of a good a producer makes, the higher the average costs of making each unit. This is because a producer will use the most productive resources to make his or her first few goods.

Perfect Competition After this point, the producer must turn to less productive resources, which means that his costs will rise. Since sellers and buyers meet in the same market, their respective supply and demand curves will meet and cross at the equilibrium point.

Perfect Competition Though some agricultural markets approximate the model of the perfectly competitive free market, in actuality there is no real example of such a market. Markets that do not have all seven features of the perfectly free market are, therefore, correspondingly less moral.

In the capitalist sense of the word, justice is when the benefits and burdens of society are distributed such that a person receives the value of the contribution he or she makes to an enterprise. Perfectly competitive free markets embody this sense of justice, since the equilibrium point is the only point at which both the buyer and seller receive the just price for a product.

Such markets also maximize the utility of buyers and sellers by leading them to use and distribute goods with maximum efficiency.

Efficiency comes about in perfectly competitive free markets in three main ways: They motivate firms to invest resources in industries with a high consumer demand and move away from industries where demand is low.

They encourage firms to minimize the resources they consume to produce a commodity and to use the most efficient technologies. They distribute commodities among buyers so that they receive the most satisfying commodities they can purchase, given what is available to them and the amount they have to spend.