ECON 208 Chapter Notes - Chapter 8-14: Nominal Interest Rate, Rent-Seeking, Paternalism
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ECON 208 Full Course Notes
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Firms have market power when they can influence the price of their product. A market is said to be competitive when its firms have little or no market power. The more market power the firms have, the less competitive is the market. The extreme form of competitive market structure occurs when each firm has zero market power. This extreme is called a perfectly competitive market. The term competitive behaviour refers to the degree to which individual firms actively vie with another for business. Examples: mastercard and visa engage in competitive behaviour but their market is not competitive, two wheat farmers do not engage in competitive behaviour but they both exist in a very competitive market. Figure 9-1 the demand curve for a competitive industry and for one firm in the industry. Each firm in a perfectly competitive market faces a horizontal demand curve- even though the industry demand curve is downward sloping.