Begin End ShowTable of Contents Market Structure (4.1.2) Copyright © 2013 N.S.

BeginEnd ShowTable of Contents

Market Structure (4.1.2)

Copyright © 2013 N.S.

Last SlideViewed

ForwardBackEnd ShowResourcesTitle Page Table of Contents


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

Last SlideViewed



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

Last SlideViewed



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.

Last SlideViewed



“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.

Last SlideViewed



What Is Perfect Competition?

1) In perfect competition, all consumers and producers are price takers.

ProducersConsumers EquilibriumPrice

Last SlideViewed





ProducersConsumers EquilibriumPrice2) This means that neither

consumers nor producers can do anything to change price.

Last SlideViewed





ProducersConsumers EquilibriumPrice2) This means that neither


3) Consumers rarely affect price, so we will focus on the producer.

Last SlideViewed





ProducersEquilibriumPrice2) This means that neither


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.

Last SlideViewed



The Two Main Characteristics

There are two conditions necessary for a perfectly competitive market to exist.

Last SlideViewed





1) Numerous SellersA) Generally there are hundreds or even thousands of sellers.

Last SlideViewed






B) No seller can have a large market share.

Last SlideViewed







C) This means no seller can produce more than a small fraction of the total market supply.

Last SlideViewed








2) Standardized ProductA) Consumers must regard all products to be identical.

= = = = =

= = = = =

= = = = =

= = = = =

= = = = =

= = = =

= = = =

= = = =

= = = =

Last SlideViewed








2) Standardized ProductA) Consumers must regard all products to be identical.

= = = = =

= = = = =

= = = = =

= = = = =

= = = = =

= = = =

= = = =

= = = =

= = = =B) They do not have to be identical, consumers just have to think they are.

Last SlideViewed



Other CharacteristicsAlthough not necessary, these other characteristics are often present in

perfectly competitive markets.

Last SlideViewed





1) Free Entry and ExitIt must be easy for new firms to open a new business in the market.

Last SlideViewed






2) Perfect InformationFirms and consumers have complete information about price, quality, and production methods.

Last SlideViewed






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.

Last SlideViewed



Short Run Industry Supply Curve

In the short run, the number of firms in the market is fixed.

Last SlideViewed





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.

Last SlideViewed






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

Last SlideViewed






Name $1 $2 $3 $4 $5

Tim 5 6 7 8 9

Ben 5 6 7 8 9

Kate 5 6 7 8 9


TOTAL 15 18 21 24 27

3) Under perfect competition, output is determined by demand and the equilibrium price.

S

D

Last SlideViewed






Name $1 $2 $3 $4 $5

Tim 5 6 7 8 9

Ben 5 6 7 8 9

Kate 5 6 7 8 9


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.

Last SlideViewed



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

Last SlideViewed





1) When new firms enter, it increases supply.

D

S1 S2

The new equilibrium is $3 with a quantity of 15.

Last SlideViewed






D

S1 S2

The new equilibrium is $3 with a quantity of 15.

2) When supply increases, output rises and price drops.

Last SlideViewed






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.


3) This will continue to happen until no firm makes a profit.

S3

Last SlideViewed






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.



S3

4) Since there is no profit, perfect competition produces the most efficient allocation of resources.

Last SlideViewed








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.

Last SlideViewed



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.

Last SlideViewed



“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.

Last SlideViewed



Resources

Begin End ShowTable of Contents Market Structure (4.1.2) Copyright © 2013 N.S.

Documents

Transcript of Begin End ShowTable of Contents Market Structure (4.1.2) Copyright © 2013 N.S.