Abstract
Abstract The theory of competitive markets is one of the most powerful tools offered by economic theory. It provides the conceptual basis for a decentralized (spontaneous) economic order, identifying conditions under which it can deliver economically efficient outcomes (a more rigorous analysis of these conditions is offered in Chapter 6, below). The chapter describes the behaviour of players, both firms and consumers, who take the competitive market price as given, derive individual and industry supply and demand curves, argue that a market-clearing equilibrium exists, is stable, is economic efficient, and is accommodating fairness-driven transfers (First and Second Welfare Theorems). We also derive elements of taxation theory and international trade, including David Ricardo's famous theory of comparative advantage.
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