Economics_Ch08

# A seller in a perfectly competitive market faces

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Unformatted text preview: duct at all: it produces and sells a product identical to that of other sellers. This means the seller is in a competitive position. If it raises the price of its product by only one penny over equilibrium price, consumers can turn to other sellers to purchase the identical product. A seller in a perfectly competitive market faces stiff competition from other sellers currently in o to www.emcp.net/ bloomberg.com/ and find today’s price of gold. Are the sellers of gold price takers or price searchers? Explain your answer. Next, go to Amazon.com in the United States (www.emcp.net/amazon.com) and in the United Kingdom (www.emcp.net/amazon_uk). Find the price of the most recent Harry Potter book in both pounds and dollars. Next, go to www.emcp.net/currency and find today’s dollar price for a pound. Next, multiply it by the pound price of the Harry Potter book. Is the price of the Harry Potter book in the United States and the United Kingdom the same? On the day we looked, the dollar price of Harry Potter and the Half-Blood Prince was \$17.99, and the pound price was £9.99. The dollar price of a pound was \$1.8233. Multiplying \$1.8223 by 9.99, we get \$18.20. In other words, Harry Potter was selling for \$17.99 in the United States and for \$18.20 in the United Kingdom. G the market, as well as potentially stiff competition from new sellers who may join the market. After all, a perfectly competitive market has easy entry into the market. Things are somewhat different for the monopolistic competitive seller. This seller does not face as much competition from current sellers, because it produces and sells a product that is slightly different from that of other sellers. A rise in the price of its good will not cause all its customers to leave it and head for its competitors. Still, the monopolistic competitor has the same problem as the perfect competitor when it comes to potential Why might a jean manufacturer create a designer label for its jeans? 209 08 (186-221) EMC Chap 08 5/8/06 4:56 PM Page 210 Lower Taxes? In 2001, a worker in Belgium paid 55 cents in taxes out of every \$1 earned. In the same year, a worker in Ireland paid 25 cents in taxes out of every \$1 earned. Going back a few years, in the late 1990s, several major Swedish companies said they were likely to leave Sweden because taxes were high. Mainly they were talking about taxes on personal income (earned by workers and owners of the companies). In Sweden, in 2001, a worker paid 48 cents in taxes for every \$1 earned. Keep in mind that a job activity that requires only a computer screen, a telephone, and a modem can be located anywhere in the world. Today, with lower telecommunication costs, companies and workers find it easier to locate anywhere in the world. They have an increased ability to “vote with their feet,” which means if they don’t like it one place, they can move somewhere else. Will this increased ability to vote with one’s feet, which is a characteristic of globalization, cause taxes in many high-tax countries to drop? Might the high-tax country lower its taxes in order to keep companies and workers in the country? ECONOMIC THINKING competitors because of easy entry into a monopolistic competitive market, just as in a perfectly competitive market. New sellers can be just around the corner waiting to take away some of a current monopolistic competitor’s business. Reviewing Facts and Concepts 1. What three conditions characterize a monopolistic competitive market? 2. How might monopolistic competitors’ products be slightly different? 3. A monopolistic competitive market shares some 210 Chapter 8 Competition and Markets How would you categorize the painkiller market—perfectly competitive, monopoly, or monopolistic competitive? Explain. How much competition does a monopoly seller face? It faces less competition than either a perfect competitor or a monopolistic competitor. It sells a product that has no close substitutes. Consumers buying from monopoly sellers have fewer options available to them than they do when they buy from perfect competitors or monopolistic competitors. For example, if a monopolistic competitor raises price too high, provides poor service, or lowers quality, many consumers will choose to walk away and buy from the seller’s competition. It’s not that easy to walk away from a monopoly seller, because no sellers sell a close substitute for the monopoly seller’s products. In short, the monopoly seller does not have to be afraid of competition, because it really doesn’t have much. Furthermore, competition is not likely to increase because of barriers to entering the monopoly market. things with a perfectly competitive market and some things with a monopolistic market. Explain. Critical Thinking 4. In what way or ways are a monopolist, a monopo- listic competitor, and a perfect competitor alike? Applying Economic Concepts 5. Identify an action of a real-world monopolistic competitor that is trying to tu...
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