THÔNG TIN TÀI LIỆU
280 PART • Producers, Consumers, and Competitive Markets product was determined by the intersection of the market demand and market supply curves Underlying this analysis is the model of a perfectly competitive market The model of perfect competition is very useful for studying a variety of markets, including agriculture, fuels and other commodities, housing, services, and financial markets Because this model is so important, we will spend some time laying out the basic assumptions that underlie it The model of perfect competition rests on three basic assumptions: (1) price taking, (2) product homogeneity, and (3) free entry and exit You have encountered these assumptions earlier in the book; here we summarize and elaborate on them • price taker Firm that has no influence over market price and thus takes the price as given • free entry (or exit) Condition under which there are no special costs that make it difficult for a firm to enter (or exit) an industry PRICE TAKING Because many firms compete in the market, each firm faces a significant number of direct competitors for its products Because each individual firm sells a sufficiently small proportion of total market output, its decisions have no impact on market price Thus, each firm takes the market price as given In short, firms in perfectly competitive markets are price takers Suppose, for example, that you are the owner of a small electric lightbulb distribution business You buy your lightbulbs from the manufacturer and resell them at wholesale to small businesses and retail outlets Unfortunately, you are only one of many competing distributors As a result, you find that there is little room to negotiate with your customers If you not offer a competitive price—one that is determined in the marketplace—your customers will take their business elsewhere In addition, you know that the number of lightbulbs that you sell will have little or no effect on the wholesale price of bulbs You are a price taker The assumption of price taking applies to consumers as well as firms In a perfectly competitive market, each consumer buys such a small proportion of total industry output that he or she has no impact on the market price, and therefore takes the price as given Another way of stating the price-taking assumption is that there are many independent firms and independent consumers in the market, all of whom believe—correctly—that their decisions will not affect prices PRODUCT HOMOGENEITY Price-taking behavior typically occurs in markets where firms produce identical, or nearly identical, products When the products of all of the firms in a market are perfectly substitutable with one another—that is, when they are homogeneous—no firm can raise the price of its product above the price of other firms without losing most or all of its business Most agricultural products are homogeneous: Because product quality is relatively similar among farms in a given region, for example, buyers of corn not ask which individual farm grew the product Oil, gasoline, and raw materials such as copper, iron, lumber, cotton, and sheet steel are also fairly homogeneous Economists refer to such homogeneous products as commodities In contrast, when products are heterogeneous, each firm has the opportunity to raise its price above that of its competitors without losing all of its sales Premium ice creams such as Häagen-Dazs, for example, can be sold at higher prices because Häagen-Dazs has different ingredients and is perceived by many consumers to be a higher-quality product The assumption of product homogeneity is important because it ensures that there is a single market price, consistent with supply–demand analysis FREE ENTRY AND EXIT This third assumption, free entry (or exit), means that there are no special costs that make it difficult for a new firm either to enter
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