If a market is perfect, then

Question

Quizplus · Accepted Answer

If a market is perfect, it must also be efficient. Efficiency is one of the characteristics of a perfect market. The other choices are not necessarily true for a perfect market as bid-ask spreads and arbitrage opportunities are indicators of market imperfections. A perfect market is one where all relevant information is available to all market participants, there are no barriers to entry or exit, and there are a large number of buyers and sellers. In such a market, prices will reflect all available information and be efficient. Therefore, a perfect market must also be efficient (option D is correct). Options A and C are incorrect because efficiency is a key characteristic of a perfect market, and there will not be any inefficiencies or arbitrage opportunities. Option B is also incorrect as bid-ask spreads are typically lower in perfect markets due to the large number of buyers and sellers.

If a Market Is Perfect, Then