ECON 212 Lecture Notes - Lecture 4: Perfect Competition, Takers, Demand Curve

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3 Feb 2017

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4: the market forces of supply and demand. Supply and demand: words economists use most often, the forces that make market economies work, refer to the behavior of people as they interact with one another in competitive markets. Market: a group of buyers and sellers of a particular good or service, buyers as a group. Determine the demand for the product: sellers as a group. Markets take many forms: highly organized. Markets for many agricultural commodities: less organized. Market for ice cream in a particular town. Competitive market: market in which there are many buyers and many sellers, each has a negligible impact on market price, price and quantity are determined by all buyers and sellers. Perfectly competitive market: goods offered for sale are all exactly the same, buyers and sellers are so numerous. No single buyer or seller has any influence over the market price. Price takers: at the market price.

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1. Characteristics of competitive markets

The model of competitive markets relies on these three core assumptions:

1.	There must be many buyers and sellers a few players can't dominate the market.
2.	Firms must produce identical products buyers must regard all sellers' products as equivalent.
3.	Firms and resources must be fully mobile, allowing free entry into and exit from the industry.

The first two conditions imply that all consumers and firms are price takers. While the third is not necessary for price-taking behavior, assume for this problem that a market cannot maintain competition in the long run without free entry.

Identify whether or not each of the following scenarios describes a competitive market, along with the correct explanation of why or why not.

Scenario	Competitive?
The government has granted the U.S. Postal Service the exclusive right to deliver mail.	________________
Several stores in the mall sell hooded sweatshirts. Each store's sweatshirts reflect the style of that particular store. Additionally, some makers use higher-quality cotton than others, which is reflected in the apparel's prices.
Two taxi companies serve most of the market in a big city. Consumers don't care about which taxi company they take if they decide it's worth taking a taxi, they flag down the nearest one.	_________________
There are dozens of pasta producers that sell pasta to hundreds of Italian restaurants nationwide. The restaurant owners buy from the cheapest pasta producer available to

copperhamster111

13. One of the limitations of Five Forces is that:

a. These tools reduce producer surplus

b. For one firm to increase profit, it takes it from other participants in the industry

c. Does not provide a firm with sustainable competitve advantage

d. both b & c.

15. All these are characterisctics of a monopoly except,

a. There is one seller of the product

b. Has few substitutes

c. Controls a large share of the market

d. Controls a small share of the market

22. Industries with high barriers to entry

a. Pushes profits to normal returns

b. increases the likelihood of firms entering the industry

c. help firms sustain profits

d. increases the number of competitors

14. How does Ebay differ from an economist's view of a perfect competitve market?

a. Ebay has few buyers whereas perfect competitve industry assumes many buyers

b. Ebay has few sellers whereas perfect competitve industry assumes many sellers

c. There is limited information in ebay whereas perfect competitive industry assumes full information for both buyers and sellers

d. There is no difference between these two markets

26. Low cost strategies are usually found in industries where

a. Products are not particularly differentiated

b. Price competion tends to be fierce

c. Both a and b

d. None of the above

Cigarettes - Price Elasticity of demand = - 0.67

A. Cigarettes

B. Alcohol

C. Sodas

D. None of the above

2. The demand for insulin will be ______________ than the demand for a Caribbean cruise in general

a. More elastic

b. More inelastic

c. Less elastic

d. Less inelastic

There is no purely economic argument against a free market in body parts. With large numbers of potential sellers and large numbers of buyers, there is little risk of the market becoming monopolized. Doctors performing the transplants would be in a position to judge the quality of the purchased organs. A higher price would lead more people to sell their kidneys, etc., while a lower price would put the parts within the means of more buyers â so such markets would be able to continually adjust to supply and demand conditions. But many people would find such markets offensive. The sellers would most certainly be considerably poorer than the buyers, so serious inequality issues are involved. There is also the likelihood that some of the organs on these markets were not voluntarily sold, particularly when they come from countries with corrupt police forces. Learn about âtransplant tourismâ in this article from The Atlantic and read about legalizing international trade in organs in Time. Several perspectives from economists are presented at EconDebates Online (choose the âGovernment and Economyâ link, and then scroll down.) What are some of the problems, from an economic standpoint, with the current rules governing organ transplantation in the U.S.? What are some of the ethical concerns about legalizing organ trade? Do you support the legalization of a market for organ donations? Explain your reasoning, being careful to list specific ethical issues and economic considerations. Could buying and selling organs result in fewer organs available for transplant?

Article Links:

https://www.theatlantic.com/health/archive/2011/11/why-legalizing-organ-sales-would-help-to-save-lives-end-violence/248114/

http://content.time.com/time/world/article/0,8599,1833858,00.html

http://www.swlearning.com/economics/econ_debate.html

ECON 212 Lecture Notes - Lecture 4: Perfect Competition, Takers, Demand Curve

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