an explanation of first best - second best world (distortions and imperfections)
For a first-best equilibrium to be present ,the market has to be
perfectly competitiv with the absence of any imperfections or
distortions. While, a second-best equilibrium occurs when one or
more than one imperfections or distortions are included.
The economy when considering both these equilibrias is a small and
perfectly competetive open one. In this type of an economy, where
there is imminent privatization, firms would be likely to maximize
profit and consumers would maximize utility. The involvement of the
government in such an economy would be in the likes of letting
things take it's own course(or laissez faire). To put it into
context, a market might be distorted when there is any
factor that prevents free and open competition while an imperfect
market might be one where individuals can highly influence prices
and production,
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