Perfect competition in the market can cause positive as well as negative effects on the society. These effects can be both economic and social. Both positive and negative impacts are briefly defined as under:
The few positive effects caused due the perfect competition are as followings:
Low Cost Production:
In the perfect competition, firms can attain maximum output at minimum production cost. Because equilibrium point of marginal revenue MR is at its lowest level.
Product available at Low Cost:
There is no exploitation of consumers because average price per unit product is at its minimum level. So the cost paid for every unit of the product is as low as P = AC.
Equality of Dealing:
There is no discrimination in the price level of the product. Consumers are well aware in the perfect competition about the level of prices which are at their minimum rate.
Following are the few negative effects of the perfect competition:
In perfect competition prices ae equal in the market so rich and poor have to pay same price for any product. There is no discrimination of the poor in perfect competition.
Limited Choice for Consumers:
As in the perfect competition all the goods are homogenous so consumers have no choice but to use the same good.
Lack of Modern Technology/ Innovation:
In the perfect competition large number of small firms participating so there is no option or time for new inventions of the modern machines and methods for the production process. In these cases there is no option to take risk of any type.