Begin End ShowTable of Contents Supply and Demand (3.2.2) Copyright © 2013 N.S.
Begin End ShowTable of Contents Market Structure (4.1.2) Copyright © 2013 N.S.
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Transcript of Begin End ShowTable of Contents Market Structure (4.1.2) Copyright © 2013 N.S.
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Market Structure (4.1.2)
Copyright © 2013 N.S.
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Table of Contents
Spectrum ofCompetition
“Perfect Competition”Learning Targets
“Perfect Competition”Learning Targets
What Is PerfectCompetition?
Is This PerfectCompetition?
The Two MainCharacteristics
OtherCharacteristics
Short Run IndustrySupply Curve
Long Run IndustrySupply Curve
Access PriorKnowledge
Set GoalsNew
InformationActivity Conclusion
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Spectrum of CompetitionDirections:1) Cut this sheet in half on the dotted line.2) On the bottom, write whatever information you know about each market.3) Cut out the different markets from the bottom portion on the dotted lines.4) Glue these markets into the empty box on the top portion. Glue them in order from the “Most Competitive” market to the “Least Competitive” market.
Most Competitive Least Competitive
See Answers
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Spectrum of CompetitionDirections:1) Cut this sheet in half on the dotted line.2) On the bottom, write whatever information you know about each market.3) Cut out the different markets from the bottom portion on the dotted lines.4) Glue these markets into the empty box on the top portion. Glue them in order from the “Most Competitive” market to the “Least Competitive” market.
Most Competitive Least Competitive
PERFECTCOMPETITION
MONOPOLISTICCOMPETITION
OLIGOPOLY MONOPOLY
The focus today is just on Perfect Competition.
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“Perfect Competition” Targets
Knowledge 1 Understand the definition andcharacteristics of a market that is in perfectcompetition.
Reasoning 1 Describe the difference between the short-run and long-run industry supply curves.
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What Is Perfect Competition?
1) In perfect competition, all consumers and producers are price takers.
ProducersConsumers EquilibriumPrice
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What Is Perfect Competition?
1) In perfect competition, all consumers and producers are price takers.
ProducersConsumers EquilibriumPrice2) This means that neither
consumers nor producers can do anything to change price.
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What Is Perfect Competition?
1) In perfect competition, all consumers and producers are price takers.
ProducersConsumers EquilibriumPrice2) This means that neither
consumers nor producers can do anything to change price.
3) Consumers rarely affect price, so we will focus on the producer.
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What Is Perfect Competition?
1) In perfect competition, all consumers and producers are price takers.
ProducersEquilibriumPrice2) This means that neither
consumers nor producers can do anything to change price.
3) Consumers rarely affect price, so we will focus on the producer.
4) The supply and demand model is a model of a perfectly competitive market.
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The Two Main Characteristics
There are two conditions necessary for a perfectly competitive market to exist.
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The Two Main Characteristics
There are two conditions necessary for a perfectly competitive market to exist.
1) Numerous SellersA) Generally there are hundreds or even thousands of sellers.
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The Two Main Characteristics
There are two conditions necessary for a perfectly competitive market to exist.
1) Numerous SellersA) Generally there are hundreds or even thousands of sellers.
B) No seller can have a large market share.
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The Two Main Characteristics
There are two conditions necessary for a perfectly competitive market to exist.
1) Numerous SellersA) Generally there are hundreds or even thousands of sellers.
B) No seller can have a large market share.
C) This means no seller can produce more than a small fraction of the total market supply.
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The Two Main Characteristics
There are two conditions necessary for a perfectly competitive market to exist.
1) Numerous SellersA) Generally there are hundreds or even thousands of sellers.
B) No seller can have a large market share.
C) This means no seller can produce more than a small fraction of the total market supply.
2) Standardized ProductA) Consumers must regard all products to be identical.
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The Two Main Characteristics
There are two conditions necessary for a perfectly competitive market to exist.
1) Numerous SellersA) Generally there are hundreds or even thousands of sellers.
B) No seller can have a large market share.
C) This means no seller can produce more than a small fraction of the total market supply.
2) Standardized ProductA) Consumers must regard all products to be identical.
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= = = =B) They do not have to be identical, consumers just have to think they are.
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Other CharacteristicsAlthough not necessary, these other characteristics are often present in
perfectly competitive markets.
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Other CharacteristicsAlthough not necessary, these other characteristics are often present in
perfectly competitive markets.
1) Free Entry and ExitIt must be easy for new firms to open a new business in the market.
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Other CharacteristicsAlthough not necessary, these other characteristics are often present in
perfectly competitive markets.
1) Free Entry and ExitIt must be easy for new firms to open a new business in the market.
2) Perfect InformationFirms and consumers have complete information about price, quality, and production methods.
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Other CharacteristicsAlthough not necessary, these other characteristics are often present in
perfectly competitive markets.
1) Free Entry and ExitIt must be easy for new firms to open a new business in the market.
2) Perfect InformationFirms and consumers have complete information about price, quality, and production methods.
3) No Long-Run Economic ProfitAny profits being earned would cause other firms to enter the market.
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Short Run Industry Supply Curve
In the short run, the number of firms in the market is fixed.
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Short Run Industry Supply Curve
In the short run, the number of firms in the market is fixed.
1) Each firm has its own individual supply curve.
Name $1 $2 $3 $4 $5
Tim 5 6 7 8 9
Ben 5 6 7 8 9
Kate 5 6 7 8 9
These three farmers each produce bushels of corn. Notice how each farmer has his/her own individual
supply schedule.
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Short Run Industry Supply Curve
In the short run, the number of firms in the market is fixed.
1) Each firm has its own individual supply curve.
Name $1 $2 $3 $4 $5
Tim 5 6 7 8 9
Ben 5 6 7 8 9
Kate 5 6 7 8 9
This final row represents the industry supply curve.
2) The sum of all individual supply curves in a market is the industry supply curve.
TOTAL 15 18 21 24 27
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Short Run Industry Supply Curve
In the short run, the number of firms in the market is fixed.
1) Each firm has its own individual supply curve.
Name $1 $2 $3 $4 $5
Tim 5 6 7 8 9
Ben 5 6 7 8 9
Kate 5 6 7 8 9
2) The sum of all individual supply curves in a market is the industry supply curve.
TOTAL 15 18 21 24 27
3) Under perfect competition, output is determined by demand and the equilibrium price.
S
D
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Short Run Industry Supply Curve
In the short run, the number of firms in the market is fixed.
1) Each firm has its own individual supply curve.
Name $1 $2 $3 $4 $5
Tim 5 6 7 8 9
Ben 5 6 7 8 9
Kate 5 6 7 8 9
2) The sum of all individual supply curves in a market is the industry supply curve.
TOTAL 15 18 21 24 27
3) Under perfect competition, output is determined by demand and the equilibrium price.
S
D4) Because the number of firms is fixed, profit can be made in the short run.
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Long Run Industry Supply Curve
Let’s say, however, that the firms in a perfectly competitive market are making a profit in the short run. It will attract new firms to enter the market.
This market is currently in short run equilibrium.
D
S1
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Long Run Industry Supply Curve
Let’s say, however, that the firms in a perfectly competitive market are making a profit in the short run. It will attract new firms to enter the market.
1) When new firms enter, it increases supply.
D
S1 S2
The new equilibrium is $3 with a quantity of 15.
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Long Run Industry Supply Curve
Let’s say, however, that the firms in a perfectly competitive market are making a profit in the short run. It will attract new firms to enter the market.
1) When new firms enter, it increases supply.
D
S1 S2
The new equilibrium is $3 with a quantity of 15.
2) When supply increases, output rises and price drops.
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Long Run Industry Supply Curve
Let’s say, however, that the firms in a perfectly competitive market are making a profit in the short run. It will attract new firms to enter the market.
1) When new firms enter, it increases supply.
D
S1 S2
In this market, if $2 is the break even price, no more firms will enter because profit is now $0.
The market is now in long run equilibrium.
2) When supply increases, output rises and price drops.
3) This will continue to happen until no firm makes a profit.
S3
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Long Run Industry Supply Curve
Let’s say, however, that the firms in a perfectly competitive market are making a profit in the short run. It will attract new firms to enter the market.
1) When new firms enter, it increases supply.
D
S1 S2
In this market, if $2 is the break even price, no more firms will enter because profit is now $0.
The market is now in long run equilibrium.
2) When supply increases, output rises and price drops.
3) This will continue to happen until no firm makes a profit.
S3
4) Since there is no profit, perfect competition produces the most efficient allocation of resources.
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Long Run Industry Supply Curve
Let’s say, however, that the firms in a perfectly competitive market are making a profit in the short run. It will attract new firms to enter the market.
1) When new firms enter, it increases supply.
2) When supply increases, output rises and price drops.
3) This will continue to happen until no firm makes a profit.
5) The long run industry supply curve is always flatter (more elastic) than the short run.
The LRS is always flatter than the SRS because firms are able to freely enter and exit
the market in the long run.
Short RunSupply
Long RunSupply
4) Since there is no profit, perfect competition produces the most efficient allocation of resources.
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Is This Perfect Competition?
(a) Complete this version if you feel you need theteacher to work with you on this topic.
(b) Complete this version if you feel you have a fairlygood understanding of this topic.
(c) Complete this version if you feel this topic is easy.
DIRECTIONSSeveral markets are listed below. Use the characteristics of perfect competition to decide whether each market is perfectly competitive or not. There are questions for each characteristic of perfect competition for each market.
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“Perfect Competition” Targets
Knowledge 1 Understand the definition andcharacteristics of a market that is in perfectcompetition.
Reasoning 1 Describe the difference between the short-run and long-run industry supply curves.
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