When people talk about the merit of Adam Smith's "invisible hand," "laissez faire," and how government should leave the market alone and it is only then the economy will work at its the best, the market they are referring to (whether or not they know it) is the perfectly competitive one we see in Chapter 12.But how common is perfect competition really in real life? Recall some of the common examples of perfect competition (What are they? 😉) and think about whether they satisfy the criteria of perfect competition. If they do, do you think these constitute the majority or minority of markets we interact with in the real world? If they don't, in what ways do they fail to qualify? If even the typically used examples do not meet the criteria, what does it say about the prevalence of perfect competition in the real world and, in turn, the validity of the arguments above? Does that mean that the government has its justification for meddling with the markets all the time? Where do we draw the line and how do we determine a healthy balance?

This question is asking for a critical analysis of the concept of perfect competition, its prevalence in real life, and the implications for government intervention in the market. Here's a step-by-step guide on how to approach this question:

1. Understand the concept of perfect competition: Perfect competition is a market structure where all firms sell an identical product, all firms are price takers, all firms have a relatively small market share, buyers have all information about the market and the products, and the industry is characterized by freedom of entry and exit.

2. Examples of perfect competition: Some common examples often cited include agricultural markets (like wheat, corn), foreign exchange markets, and online auctions like eBay.

3. Analyze these examples: Do these examples meet the criteria of perfect competition? For instance, in agricultural markets, while the product is identical and there's freedom of entry and exit, not all buyers and sellers have perfect information. Similarly, on eBay, while there's a large number of buyers and sellers, the products sold are not identical.

4. Prevalence of perfect competition: Given that even the common examples do not fully meet the criteria, it can be argued that perfect competition is more of a theoretical concept and not prevalent in the real world. Most real-world markets are characterized by imperfect competition (monopolistic competition, oligopoly, or monopoly).

5. Implications for government intervention: The absence of perfect competition does not automatically justify government intervention. The government may need to intervene to correct market failures (like monopoly power, negative externalities, public goods), ensure fair trade and consumer protection, and maintain macroeconomic stability. However, excessive intervention could distort market incentives and lead to inefficiency.

6. Finding a balance: The balance between laissez-faire and government intervention depends on a variety of factors, including the specific market conditions, the nature of the product, the degree of market failure, and the government's policy objectives. It's a complex issue that requires careful analysis and judgement.