ECON 200 Chapter Notes - Chapter 13: Sunk Costs, Marginal Cost, Market Power

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lemonsnail891

25 Feb 2015

School

University of Maryland

Department

Economics

Course

ECON 200

Professor

Cindy Clements

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Document Summary

Competitive market- a market in which fully informed price-taking buyers and sellers easily trade a standardized good or service. 1) individuals can"t affect the going price. Price taker- a buyer or seller who cannot affect the market price. Buyers and sellers have so much competition, they have no ability to set their own price and sellers. Implies that market contains a very large number of buyers. The decision of individual participants are so small relative to the total size of the market that they can"t affect market prices. Market power- the ability to noticeably affect market prices. When goods are standardized, they are interchangeable. Buyers have no reason to prefer goods sold by one producer over those sold by another, as long as they are the same price. Causes producers to sell at market price. In real life, goods are differentiated by quality, brand name, or characteristics that appeal to different tastes. Many natural resources can be considered standardized goods.

Related Questions

1. A perfectly elastic demand function

Select one:

a. is characteristic of an individual firm operating in a perfectly competitive market.

b. shows that a consumer is willing to pay any amount for the product.

c. shows that the individual firm can increase sales by lowering the price of output.

d. has a marginal revenue that is always decreasing.

2. Your local farmer has many competitors and exists in a market structure known as perfect competition. This means that price is determined outside of the individual farmer's ability to charge a price higher than the going market for a bushel of wheat, hence the farmer is

Select one:

a. a price maker and can therefore charge different customers different prices.

b. a price taker and cannot affect the market price of wheat.

c. always able to price produce above the competition and earn a larger profit.

d. never able to determine any prices he charges for anything, such as soybeans

3. All of the following are true regarding perfectly competitive price determination EXCEPT

Select one:

a. the individual firm takes the market price as given.

b. the individual firm is known as a market price maker.

c. the individual firm's marginal revenue curve is horizontal at the market price.

d. the market price is determined by the interactions among all buyers (households) and firms.

redhornet79

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

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 an identical product buyer must regard all sellers' products as equivalent.
3.	Firms and resources must be fully mobile, allowing for 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 behaviour, 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.

Is the scenario	Competitive?
Dozens of companies produce plain white socks. Consumers regard plain white socks as identical and don't care who manufactures their socks.
In a major metropolitan area, one chain of coffee shops has gained a large market share because customers feel its coffee tastes better than that of its competitors.
Scholastik Inc. owns the U.S. copyright to a popular book series. It is the only company with the legal right to publish books in the series in the United States.
In a small town, there are two providers of broadband Internet access: a cable company and the phone company. The Internet access offered by both providers is of the same speed.

amberfly263

ECON 200 Chapter Notes - Chapter 13: Sunk Costs, Marginal Cost, Market Power

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