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The United States has not experienced a major depression since the
1930s, in part because of the federal government's use of anticyclical
measures, including wage and price controls, and deficit spending. After
a period of economic stagflation in the United States during the 1970s,
inflation and unemployment were brought under control in the 1980s.
The national debt, however, almost quadrupled in that decade. Thus, the
federal government's response to the recession that began in 1990 did
not include major new spending programs because of a reluctance to
increase the deficit. In fact, an important concern in dealing with the
problems of the business cycle is the fear that inappropriate measures
might precipitate a severe recession or even a depression.
Perfect Competition
Competition, in economics, implies conditions that are present in
markets where buyers and sellers interact to establish prices and
exchange goods and services. Economic competition is the means
whereby the self-interest of buyers and sellers acts to serve the needs of
society as well as those of individual market participants. Society is
served when the maximum number of goods is produced at the lowest
possible prices.
The theoretical ideal developed by economists to establish the
conditions under which competition would achieve maximum
effectiveness is known as "perfect" competition. Although rarely
possible, perfect competition, as a concept, provides a useful benchmark
for evaluating performance in actual markets. Perfect competition exists
when (1) an industry has a large number of business firms as well as
buyers; (2) the firms on the average are small; and (3) buyers and sellers
have complete knowledge of all transactions within the market.
The practical significance of a large number of small firms and
many buyers is that the power to influence the behavior of the
participants in the market is thoroughly dispersed. In other words, no
single person or business has the power to dictate the terms on which the
exchange of goods and services takes place. Market results then are truly
impersonal. Under conditions of perfect competition, economists
contend, goods and services would be produced as efficiently as
possible-that is, at the lowest possible price and cost-and consumers
would get the maximum amount of the goods and services they desire.
Workable Competition
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