Microeconomics › Section H · Perfect competition › Topic H.4
Efficiency in competitive markets
Competition's deepest result is not that firms work hard or prices are fair - it is that, absent externalities and other market failures, a perfectly competitive market produces the right amount at the lowest cost, with no way left to make anyone better off without making someone worse off. Here is the argument, in two efficiencies and one number.
In this topic
- Two meanings of efficient
- Productive efficiency: cost at its floor
- Allocative efficiency: value meets cost at the margin
- Worked example: the surplus at equilibrium
- Worked example: any other quantity is worse
- One diagram, three equalities
- What competition does not guarantee
- Common mistakes to avoid
- Key takeaways
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