CH_09-Micro - Full Length Text - Part: 5 Micro Only Text -...

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To Accompany “Economics: Private and Public Choice 11th ed.” Slides authored and animated by: Full Length Text Micro Only Text Part: Part: Chapter: Chapter: Next page Copyright ©2006 Thomson Business and Economics. All rights reserved. 5 21 3 9
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Jump to first page Copyright ©2006 Thomson Business and Economics. All rights reserved. Price Takers produce identical products and each seller is small relative to the market. Each seller has little or no effect on the market price. Each firm can sell as much as it wants at the market price It is unable to sell any output at a price greater than the market price Example : agriculture (wheat, corn, soybeans) It is also called a purely competitive market.
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Jump to first page Copyright ©2006 Thomson Business and Economics. All rights reserved. Price Searchers face a downward sloping demand curve for their product. The amount that the firm is able to sell is inversely related to the price it charges. Examples : Nike General Motors Exxon most retail stores
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Jump to first page Copyright ©2006 Thomson Business and Economics. All rights reserved. Why do we study price taker markets? The competitive price-taker model … applies to some markets, such as agricultural products. helps us understand the relationship between individual firms and market supply. increases our knowledge of competition as a dynamic process.
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Jump to first page Copyright ©2006 Thomson Business and Economics. All rights reserved. The characteristics of price-taker markets: homogeneous products – all firms produce an identical product many firms – there are numerous suppliers in the market small firms – each firm supplies only a small portion of the total market output no entry / exit barriers – firms may freely enter and exit the market
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Jump to first page Copyright ©2006 Thomson Business and Economics. All rights reserved. Output Price Firm Output Price Market Market forces determine price. Price takers have no control over the price that they may charge in the market. If such a firm was to charge a price above that established by the market , consumers would simply buy elsewhere. Thus, the firm’s demand curve is perfectly elastic – it is horizontal at the price determined in the market. P Market demand Market supply Firm’s demand P Firms must take the market price.
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Jump to first page Copyright ©2006 Thomson Business and Economics. All rights reserved. Marginal
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CH_09-Micro - Full Length Text - Part: 5 Micro Only Text -...

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