2. Explain the principle of perfect competition. Do you think that the same principle is applicable to analyse the market for ‘love’? In the literature, what are the main models used in the economic analysis of
‘love’? Do you think that the ‘love’ is a consumption good? [8 marks]

The principle of perfect competition says that the price of a product is determined by the interaction between the market demand for the product and the market supply of the product. The demand curve is therefore perfectly elastic (horizontal). A demand curve for an individual firm is flat meaning that it is perfectly elastic. This in turn means that the individual takes the market price, denoted as ‘P’ on the graph. The slopes of the market demand curve and the individual demand curve is due to the assumption that each firm is small in size. The amount of output will not affect the market.

Characteristics of Perfect competition:
- There exists a large number of buyers and a large number of sellers
- Products offered are identical
- The market has free entry and free exit
- It is assumed that both buyers and seller are well informed

Demand curve, perfect competition Market equilibrium price

I don’t believe that this principle is applicable to analyse the market for love. Perfect competition is based on the assumption of perfect information that is freely available as well as rationale decision making. Unfortunately due the dynamic nature of individual feelings, perfect information is hard to come by when entering into a relationship. We use information to decide who we want to go out with (product we want to buy) and the amount of effort that will need to be exerted with them (Price). If the market is under informed about who is available to go out with, if you find someone who you believe is worth getting into a relationship with, you may not have to compete for their affections. The more informed the market becomes,