ECON 1B03 Chapter Notes - Chapter 3: Demand Curve, Inferior Good, Takers
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12 Apr 2017
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Market: a group of buyers and sellers of a good or service. Not necessarily a physical place such as a fruit market. Many buyers and sellers act independently from each other. Firms can enter or exit the market freely; there are no barriers for entering and no commitments to stay in. Resources are mobile enough that they can move from one industry to another. Because there are so many buyers and sellers, there is no dominant provider over-taking the market. In perfect competition, consumers and firms are price takers: price takers: buyers know the price they have to pay and sellers know the price they will receive; they take the going price as given. All the consumers who want to buy a good or service together constitute market demand. All the firms who want to sell a good or service together constitute market supply.
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Related Questions
1. Characteristics of competitive markets
The model of competitive markets relies on these three core assumptions:
1. | There must be many buyers and sellers a few players can't dominate the market. |
2. | Firms must produce identical products buyers must regard all sellers' products as equivalent. |
3. | Firms and resources must be fully mobile, allowing free entry into and exit from the industry. |
The first two conditions imply that all consumers and firms are price takers. While the third is not necessary for price-taking behavior, assume for this problem that a market cannot maintain competition in the long run without free entry.
Identify whether or not each of the following scenarios describes a competitive market, along with the correct explanation of why or why not.
Scenario |
Competitive? |
---|---|
The government has granted the U.S. Postal Service the exclusive right to deliver mail. | ________________ |
Several stores in the mall sell hooded sweatshirts. Each store's sweatshirts reflect the style of that particular store. Additionally, some makers use higher-quality cotton than others, which is reflected in the apparel's prices. | |
Two taxi companies serve most of the market in a big city. Consumers don't care about which taxi company they take if they decide it's worth taking a taxi, they flag down the nearest one. | _________________ |
There are dozens of pasta producers that sell pasta to hundreds of Italian restaurants nationwide. The restaurant owners buy from the cheapest pasta producer available to |