nlecture12 - competitive

nlecture12 - competitive - Topic 6: Competitive Markets (1)...

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opic 6: Competitive Markets (1) Topic 6: Competitive Markets (1) Equilibrium and efficiency of competitive markets USC Marshall
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Competitive markets • What makes a market “competitive” – “many” buyers – “many” sellers A perfectly competitive market py p Each participant takes the price as given • No transaction costs • Homogeneous product • Free entry –Everybody has access to the same production technology USC Marshall
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Competitive supply Examples of perfectly competitive markets: – Roughly holds: • Most agricultural products (wheat, corn,…) • Steel, aluminium,… • Stock market? • eBay? USC Marshall
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Competitive markets Aggregate (market) demand: – Horizontal sum of individual demands USC Marshall
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Competitive markets Aggregate (market) demand: – Horizontal sum of individual demands P P P QQ Q Helen Tom Market USC Marshall
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Competitive markets Aggregate (market) demand: – Horizontal sum of individual demands P P P QQ Q Helen Tom Market USC Marshall
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Competitive markets Aggregate (market) demand: – Horizontal sum of individual demands P P P P QQ Q Helen Tom Market Q H Q M USC Marshall
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Competitive markets Aggregate (market) demand: – Horizontal sum of individual demands P P P P QQ Q Helen Tom Market Q H Q M USC Marshall
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Competitive markets Aggregate (market) demand: – Horizontal sum of individual demands P P P P Q H Q T QQ Q Helen Tom Market Q H Q M Q T USC Marshall
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Competitive markets Aggregate (market) supply: – The horizontal sum of individual supply curves USC Marshall
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Competitive markets Aggregate (market) supply: – The horizontal sum of individual supply curves P P P QQ Q Helen Tom Market USC Marshall
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Competitive markets Short-run versus long-run market supply: – Short-run: capital stock is fixed and no entry or exit of firms is possible – The firm short-run supply curve is the marginal cost curve above the average variable cost curve – The market short-run supply curve is the horizontal um of the firm short n supply urves sum of the firm short-run supply curves – Because all individual supply curves are upward- loping and no entry/exit is possible in the short- sloping and no entry/exit is possible in the short run, the industry supply curve slopes up as well USC Marshall
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Competitive supply PP P + = Q firm1 Q firm2 QQ firm 1 firm 2 industry supply Q USC Marshall
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Competitive markets Short-run versus long-run market supply: – Long-run: capital stock is flexible and the firms are able to enter and exit the market Free entry: everybody has access to the technology used in production • An infinite number of potential entrants
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This note was uploaded on 03/09/2009 for the course BUAD 351 taught by Professor Eastin during the Spring '07 term at USC.

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nlecture12 - competitive - Topic 6: Competitive Markets (1)...

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