Ch.7 Perfect Competition

Ch.7 Perfect Competition - Perfect Competition 1 What will...

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1 Perfect Competition
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2 What will I learn in this chapter? This chapter combines the demand, cost of production, and marginal analysis concepts from previous chapters to explain how competitive markets determine prices, output, and profits.
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3 Who was Adam Smith? The father of modern economics who wrote The Wealth of Nations, published in 1776
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4 What did Adam Smith say about competitive forces? They are like an “invisible hand” that leads people who simply pursue their own interests to serve the interests of society
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5 What is market structure? A classification system for the key traits of a market, including the number of firms, the similarity of the products they sell, and the ease of entry and exit
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6 What is perfect competition? 1. many small firms 2. homogeneous product 3. very easy entry and exit 4. price taker
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7 What does homogeneous mean? Goods that cannot be distinguished from one another; for example, one potato cannot be distinguished from another potato
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8 What is a price taker? A seller that has no control over the price of the product it sells
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9 Auctions are often considered to be competitive markets. Auctions over the Internet are now quite common. For example, visit eBay ( http://www.ebay.com / ) and click on Live Auctions. For more about how auctions work, visit the Auction Marketing Institute (AMI), a nonprofit professional educational organization ( http://www.auctionmarketing.org / ).
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10 What determines price? Supply and Demand
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11 $80 $60 $40 $20 5 10 1520 $100 $120 $130 $140 2530 35 40 45 D S Market Supply and Demand P Q
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What determines the individual firm’s demand curve? A horizontal line at
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Ch.7 Perfect Competition - Perfect Competition 1 What will...

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