Chapter 8 Pure Competition in the Short Run Notes

Chapter 8 Pure Competition in the Short Run Notes - Chapter...

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Chapter 8: Pure Competition in the Short Run Four Market Models: - Differ in terms of: the number of firms in the industry, whether those firms produce a standardized product or try to differentiate their products from those of other firms, and how easy or how difficult it is for firms to enter the industry - Pure Competition : A market structure in which a very large number of firms sells a standardized product, into which entry is very easy, in which the individual seller has no control over the product price, and in which there is no non-price competition; a market characterized by a very large number of buyers and sellers o Output is virtually identical (like cotton) - Pure Monopoly : A market structure in which one firm sells a unique product, into which entry is blocked, in which the single firm has considerable control over product price, and in which non-price competition may or may not be found (product differentiation is not an issue) - Monopolistic Competition : Many firms sell a differentiated product, into which entry is relatively easy, in which the firm has some control over its product price, and in which there is considerable non-price competition o Non-Price Competition : selling strategy in which a firm does not try to distinguish its product on the basis of price but instead on attributes like design and workmanship ( product differentiation ) - Oligopoly : few firms sell either a standardized product or differentiated product, into which entry is difficult, in which the firm has limited control over product price because of mutual interdependence (except when there is collusion among firms), and in which there is typically non-price competition o Decisions into account on determining their own price and output compared to rivals - Imperfection Competition : all market structures except pure competition (monopoly, monopolistic competition, and oligopoly) - Pure Competition: Characteristics and Occurrence - Relatively rare - Meaningful starting point for any discussion of price and output determination - Provides a standard, or norm, for evaluating the efficiency of the real-world economy - Very Large Numbers of independently acting sellers, offering products in large national or international markets
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o EX) stock market, markets for farm commodities, foreign exchange market - Standardized Product (identical or homogeneous); as long as price is the same consumers are indifferent in who it comes from; no attempt to differentiate their products and don’t engage in other forms of non-price competition - “Price Takers” , individual firms do not exert control over product price; Each firm produces a small fraction of total output that increasing or decreasing output will not influence total supply o Price Taker : A seller (or buyer) that is unable to affect the price at which a product or resource sells by changing the amount it sells (or buys) o Individual competitive producer is at the mercy of the market; higher price is futile - Free Entry and Exit : no legal blocking or obstacles from selling their output in any
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