Date: November 30, 2015 Topic: Perfect Competition Aim: How does perfect competition impact a free market society? Do Now: Multiple Choice Questions.
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Perfect/Pure Competition- Large number of firms all producing essentially the same product at the same price. Assumes that the Market is in Equilibrium. Producers make decisions on how much to produce. Each firm produced so little of the product compared to the total supply that no single firm can hope to influence prices.
Perfectly competitive markets: require many participants on both the buying and selling sides. NO individual can be powerful enough to buy or sell enough goods to influence the total market quantity or the market price.
No difference between the products sold by different suppliers. Commodity - A product that is considered the same regardless of who makes or sells it. Always choose the lowest price. Examples: Unleaded gasoline, milk, notebook paper, sugar.
COFFEE – AS A COMMODITY
Know enough about the market to find the best deal they can get. The Market provides the buyer with full information about the features of the product and its price. DRIVE THE EXTRA MILE TO THE GETTY ON ROUTE 25 – THEY HAVE THE BEST DEAL!
Firms must be able to enter markets when they can make money and leave when they can’t earn enough to stay in business. Markets with more firms/more competition = lower prices.
Factors that make it difficult for new firms to enter a market. Barriers to entry can lead to Imperfect competition. Common barriers: 1) Start-up Cost 2) Technology EXAMPLES WILL FOLLOW NEXT…
Entrepreneurs need to invest money in a new firm before earning income. The expenses that a new business must pay before the first product reaches the customers- Start up Costs.
New Entrepreneurs cannot easily enter markets without a lot of technological preparation and study. Barriers of technology and know- how can keep a market from becoming perfectly competitive.
SUMMARY
1)Many buyers and sellers participate in the market. 2)Sellers offer identical products. 3)Buyers sellers are well informed about products. 4)Sellers are able to enter and exit the market freely.
To what extent is competition beneficial to a Free-Market economy?