lectur6-page22

lectur6-page22 - price five cents a gallon and the others...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
22 22 Competition and Unrestricted Markets u Economic competition imposes limits on the self interest of buyers and sellers. Competition is a regulating force in capitalist systems. i.e. Raise prices Consumers go to another one of many sellers. Economic profit earned New firms will enter the industry. In pure capitalism, there are few market restrictions. In fact, one of the roles of government in pure capitalism is to prevent monopolies and monopsonies and do all that is possible to provide an economic environment that is conducive to good, strong, healthy competition in the market place. In pure capitalism, competition is the regulating force in the economy. When we have many sellers for consumers to choose from, if one seller raises his/her price, consumers go to one of the other many sellers. Picture a four way intersection in your mind with gas stations on each corner. If one gas station raises its
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: price five cents a gallon and the others do not, what is going to happen? If one gas station lowers it price by five cents a gallon and the others do not, what is going to happen? Economists basically recognize two types of profits. Normal profits and economic profits. Normal profits occur when a firm earns an amount of money that basically covers all of their costs an accountant would figure up and provides a return to the factors of production that the firm owns that is equal to what those factors of production would earn if used in a production process elsewhere. In other words, total revenue minus accounting costs minus opportunity costs. Economic profits occur when a firm earns an amount of money that is in excess of accounting costs and opportunity costs. Think of economic profits as being super duper mega profits....
View Full Document

Ask a homework question - tutors are online