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LOOK AT THE PAPER!

Date : March 30, 2011 Topic : Perfect Competition Aim : Why is perfect competition beneficial to a free market society? Do Now : Handout. LOOK AT THE PAPER!. BE THE PAPER!. Market Structure:. Perfect/Pure Competition-

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LOOK AT THE PAPER!

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  1. Date: March 30, 2011Topic: Perfect CompetitionAim: Why is perfect competition beneficial to a free market society?Do Now: Handout

  2. LOOK AT THE PAPER! • BE THE PAPER!

  3. Market Structure: 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 (given their production costs & the market price)

  4. 4 Conditions for Perfect Competition • Many buyers and sellers participate in the market. • Sellers offer identical products. • Buyers sellers are well informed about products. • Sellers are able to enter and exit the market freely.

  5. Example Farms

  6. Many Buyers and Sellers • 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.

  7. Identical Product • No difference between the products sold by different suppliers. • A product that is considered the same regardless of who makes or sells it. • Always choose the lowest price. Examples: Low-end gasoline, milk, notebook paper, sugar. Commodity:

  8. Informed Buyers and Sellers • 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.

  9. Free Market Entry and Exit • Firms must be able to enter markets when they can make money, leave when they can’t earn enough to stay in business • Markets with more firms/more competition= lower prices

  10. Barriers to Entry • 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

  11. A.) Start-up Costs • 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 costumers- Start up Costs.

  12. B. Technology • 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.

  13. Summary: To what extent is competition beneficial to a Free-Market economy?

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