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ECO100Y5 (285)
Chapter 9

Chapter 9- Competitive Markets.docx

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University of Toronto Mississauga
Kalina Staub

Chapter 9 Competitive Markets 91 Market StructureFirm BehaviourMarket Structure All features of a market that affect the behaviour and performance of firms in that market such as the number and size of sellers the extent of knowledge about one anothers actions the degree of freedom of entry and the degree of product differentiation Competitive Market StructureMarket Power The ability of a firm to influence the price of its productA market is said to have a competitive structure when its firms have little or no market power the more market power the firms have the less competitive is the market structure Competitive BehaviourCompetitive Behaviour Degree to which individual firms actively vie with one another for business and both companies have some real power over their market The Significance of Market StructureDetails of the market structure determine how we get from the industry demand curve to the demand curve facing any individual firm in that industryMarket structure plays central role in determining behaviour of individual firms and also in the overall efficiency of the market outcomes SummaryA competitive market structure is one in which individuals firms have no market power that is they have no power to influence the price at which they sell their productCompetitive behaviour exists when firms actively compete against one another responding directly to other firms actionsPerfectly competitive firms do not have competitive behaviour because the actions of any one firm would have no effect on any other firm 92 The Theory of Perfect CompetitionPerfect Competition A market structure in which all firms in an industry are price takers and in which there is freedom of entry into and exit from the industry agriculture and raw materials The Assumptions of Perfect CompetitionView four assumptions on lecture notesPrice Taker A firm that can alter its output and sales without affecting the market price of its product each firm is an insignificant part of the whole market and thus has no power to influence the price of wheat
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