Final answer:
Productive efficiency and allocative efficiency are achieved in perfectly competitive markets due to production at lowest average cost and optimal distribution of resources reflecting societal preferences. These efficiencies are not fully achieved in imperfect markets, such as monopolies or oligopolies, due to issues like price setting above average costs and misalignment of consumer preferences and output.
Step-by-step explanation:
When analyzing market structures using the concepts of productive efficiency and allocative efficiency, it becomes evident why a perfectly competitive market is considered 'perfect.' Productive efficiency is reached when goods are produced at the lowest possible average cost, which is the case in a perfectly competitive market where price equals the minimum of the long-run average cost curve due to free entry and exit of firms. This is not the case in imperfect markets like monopolies or oligopolies where firms have the power to set prices above their average costs and may not produce at minimum average cost.
Allocative efficiency occurs when the mix of goods produced represents the mix that society most desires, which is at the point where the marginal cost of production is equal to the marginal benefit to consumers. This typically happens in perfectly competitive markets where goods are priced equal to marginal costs, leading to an optimal distribution of resources. In contrast, imperfect markets may not reach allocative efficiency due to factors like price setting above marginal costs, leading to underproduction, and consumer preferences not being perfectly matched by output.