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 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
production costs change over time,
explored in explored in chapter 21
affects this analysis.
Purely Competitive Adjustment Causing
Serious competition from foreign manufacturers beginning with automobiles and steel increased supply causing Rust Belt Industries to lose their pricing power. This eliminated excess profits. Some industries incurred a loss as supply increased too much. Wage give backs began and many workers found themselves with stagnating wages. Companies used technology and outsourcing to be more competitive and maintain profit but this 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.
The bottom line is the standard of living enjoyed by U.S. citizens, their micro-lives, will grow more slowly as it is forced to 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 with shale has lessened lessen this dependency. But we will still enjoy the highest industrialized world standard of living in the.
Technology will continue to make our macro-lives
from economist.com 01/12/13
better, especially now that the Asians are contributing with their R&D
investments and collaborative competition in science helped by the Internet has
accelerate scientific advancement. Plus gains from science are often cumulative and while not
a straight line upward they eventually 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 updated 8/24/15
Citizen Well-Being is
More Important and
1) Our society's stability has consistently increased
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|
|Table of Contents|
|Economics Internet Library|