Chapter 23 Pure Competition
Editors Note: Part II Product and Factor Markets introduces this chapter. It contains a concise overview of the four market models discussed in chapters 23-29.
A. A purely competitive market exists
when the number of independently
acting buyers and sellers is so large
that individual participants have no
affect on market price and quantity.
B. Products sold are virtually identical.
Agricultural products such as pota
- toes and wheat are examples
of competitively sold products.
C. Pure competition industries as
defined is difficult to find because
some monopoly power usually exists.
D. Price is determined by the intersection
of industry supply and demand.
E. Individual firms are Price Takers
as they inherit a horizontal demand-
marginal revenue curve from their
1. A firm can not sell above market
as products are identical and no
one will buy higher than market.
2. There is no reason to sell below
market as it would mean less
revenue and less profit.
Why "We're Different" is the
Adjacent advertisements in an 1885 newspaper for the makers of two competing ore concentrators (machines that separate out valuable ores from undesired minerals). The lower ad touts that their price is lower, and that their machine's quality and efficiency was demonstrated to be higher, both of which are general means of economic competition.
From chapter 22 on Understanding Profit
A. Price is higher than average total cost so total
is greater than total cost.
B. Cost includes a reasonable return on
investment called "normal profit" so under this
definition of cost, any profit is an excess.
1. Profit Maximization for a Competitive Firm
from Dennis Kaufman Wisconsin-Parkside.
2. Profit Maximization in Perfect Competition
by Fiona Maclachlan
3. Perfect Competition Graphing Practice
from Econ in 60 seconds
|III. Purely Competitive Adjustment|
4. Many feel a zero long run economic
profit represents an ideal economic
model as all the company earns is a
normal return on investment.
B. Perfect Competition in the Long Run
Growing Nation shows how
production costs change over time,
explored in explored in chapter 21
affects this analysis.
Purely Competitive Adjustment Causing
a New Norm?
Beginning with the economic expansion caused by WWII, demand for U.S. manufactured goods increased dramatically. It took Germany, England and Japan many years to repair war damaged manufacturers and bring an end to U.S. manufacturers monopoly power. As a result, demand increase from D to D.' Profits maximization resulted. Thanks in part to Unions, these manufactures shared their excess profits with unionized workers and wages increases spilled over to many nonunion workers.
Serious competition from foreign manufacturers, beginning with automobiles and steel, increased supply from S to S'. Rust belt industries lost all their excess profits and some incurred a loss as supply increased too much to S" (not shown). Wage give backs began and many other workers found themselves with stagnating wages. Companies used technology and outsourcing to be more competitive and this continues to put pressure on wages.
This also happened in the finance industry with competition coming from foreign banking and cheap Internet trading. Their attempt to increase D for their services with exotic products like derivatives has not worked out well as of 07/01/10. slowly as we
The problem has been compounded by high world-wide savings generated by these new manufacturing countries. It flows into the U.S. pushing up the values of the dollar thus making foreign goods cheaper. Less good jobs results ad cheaper goods from overseas are too often luxury goods.
from economist.com 01/12/13
|As a result, the high ever increasing standard of living enjoyed by U.S. citizens, their micro-lives, will grow very slowly as we share the wealth with people from around the world. We may even have to give some back because of our energy dependence and recent decadence though increased production of energy and shale lessen this dependency. But we will still enjoy the highest standard of living in the industrialized world and technology will continue to make our macro-lives better, especially now that the Asians are contributing with their R&D investments. Plus gains from science are often cumulative and while not continually added to our micro lives they make our macro lives better. Think childhood diseases being cured and smart phones. Plus its always good remember the best things in life will continue to be free and having enough money is a function of demand, not supply. 08/12/11|
IV. Economic Analysis of
Econintersect: The U.S. slipped to seventh place in the ranking of economic competitiveness in the 2012. source the WEF (World Economic Forum). Last year the U.S. ranked fifth. The current result marked the fourth year of decline for the country that used to rule the competitiveness roost.
More from econintersect.com.
Editor's commenton free trade
SWITZERLAND tops the latest competitiveness ranking from the World Economic
Forum, best known for its annual shindig in Davos (a Swiss ski resort). It is
closely followed by Singapore. Finland has topped Sweden to third place. Of the
big emerging economies, China remains on top, with Brazil moving up.
The most striking fall is the United States, which has dropped in the rankings for four years in a row. It is now seventh. The rankings are based on criteria such as institutions, infrastructure, financial systems, flexible labor markets, economic stability, innovations and public services. Plotting the scores against GDP per person reveals an unsurprising correlation: competitiveness brings wealth, but rich countries can most easily afford to provide the conditions for it. They can squander competitiveness too.
|Editors Note: Comparing the U.S. to anyone other than Germany and Japan is difficult as others are either small or developing. Plus we get a benefit from our being the world's currency which accrues from our being easily the world's strongest military and industrial nation. China assembles parts from all over Asia and has a way to go to be considered in this group.||
depicts 19th American Capitalism at Work
S and P
volatility depicts the problem of growth volatility systemic
to capitalism makes puts pressure on monetary and fiscal policy
|Chapter 23 Class Discussion Questions|
|Chapter 23 Homework Questions|
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