A10+Competitive+Market+Model

A10+Competitive+Market+Model - Frank Chapter 11(Blue Book a...

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Frank Chapter 11 (Blue Book) a) The competitive model i) Foundation of all other models (1) All other economic models are the results of exceptions to the assumptions of the competitive model ii) Assumptions (1) Homogeneous product (a) Definition of market determined by consumer (b) Resource use (supply) constrained by tech and resource base (c) Fast food (2) Perfect information (a) Characteristics of product are known (i) Lowers uncertainty and “search” costs (b) Location of “market” known (i) Lowers search costs (c) Televisions (3) Free entry and exit (a) Free (i) No pecuniary cost 1. No sunk costs (ii) Flow is not inhibited 1. No artificial barriers to entry (b) Entry (i) Acts as downward pressure on prices (ii) Produces threat of competition that forces firms to be a price/product taker (c) Exit (i) Not usually a concern, but if exit were a concern, such as in the case of some mandated contract to enter, it would in effect act as a barrier to entry (d) Bars (4) Many buyers and sellers (a) How many is many? (i) Enough that no small group of buyers or sellers has enough market power to determine the price (b) Automobiles (i) ’65 Mustang GT Fastback: $2,589/$14,539.50 (65% of ’01 price) (ii) ’01 Mustang GT: $22,360 1. Better Seats a. Higher quality b. Adjustable 2. Power windows 3. Power locks 4. Cup holders 5. 4 Wheel Disc w/ ABS
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6. Better Gas Mileage 7. Air conditioning 8. 9. “Eco-Friendly” 10. Better handling 11. Bigger and better tires
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This note was uploaded on 04/10/2008 for the course ECON 3150 taught by Professor Tittle during the Spring '08 term at Georgia Tech.

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A10+Competitive+Market+Model - Frank Chapter 11(Blue Book a...

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