Ag Econ

Perfect Competition

standardized production, sellers and buyers, full information, easy entrance/exit, mobile resources, small market share

what does easy entrance and exit mean

easy start/stop to production

outcomes of perfect competiton

no control over price, no non-price competition, limited opportunity for econ profit to influence buyers and sellers

why is perfect comp amazing for consumers

lower price paid but limit economic profit made by producers

how do businesses avoid perfect competition

eliminating one or more characteristics

4 firm concentration ratio

markets less competitive when CR4 over 40%

market shares

both sellers and buyers price takers (actions no effect on price)

standardized production

consumers can’t tell difference

ATC above profit

profit is negative

in short run, a firm will produce if p> shutdown price (min avc)

yes

a firm will not produce if p<min avc

no

shutdown price

minimum average variable cost

sherman antitrust act

protect public from failure of market directs itself against conduct which unfairly tends to destroy competition itself

imperfect competition

ne or more sellers possess market power to influence prices

monopolistic competition

consumers tell difference between products

many sellers, differentiation, profits exist shortrun but zero longrun, max profit mc=mr

oligopolist

NOT a price taker, no fixed cutoff, maintain higher prices (1 firm drops to $8 they all will), cut price is competitor does BUT wont increase price

oligopolist examples

farm machinery manufactures, domestic automobile industry, pesticide/fertilizer industries

monopoly

1 seller market, market power, barriers to entry, unique production, economic profits in long run, most inelastic demand

externalities

spillovers, impact 3rd party

external cost

pollution, texting while driving

external benefit

education, network

coase therom

individuals find way to make mutually beneficial deals, take externalities into account when make decision

coase therom example

stop playing load music during neighbor kids naptime in exchange for lawnmower

network externailty

value of good greater when large number of people do it (ex:telephones, social media)

transition cost

all cost to individuals making deal

emissions tax

cost depends on amount of pollution a firm produces

pigouvian tax

taxes design to reduce external cost from emission tax

tradable emissions permits

license to emit limited quantities of pollutants; brought/sold from polluters

nonexcludable

people who dont pay cannot be easily prevented (ex: fireworks)

nonrival

more than one person can consume same unit of good at the same time (ex: digital music, movie)

excludable

people who dont pay can be easily prevented from using good (ex: clothes)

rival

same unit of good cannot be consumed by more than 1 person at a time (ex: cheeseburger)

private

excludable & rival; efficiency provided in competitive markets

public

nonexcludable & nonrival; difficult to get people to pay/ production cost do not significantly change with additional users (ex: lighthouse)

artificially scacre

excludable & nonrival; market provide good at inefficent level (ex: wifi)

common resources

nonexcludable & rival; consumers cannot be excluded from consuming good but when anyone consumes it there is less for everyone else (ex:grazing)

free rider problem

unwilling to pay bit take free ride from people who pay

autarky

country doesnt trade with others

tariff

tax on imports

2 impacts of tariffs

1) higher domestic production, lower domestic consumption

2) less consume—>lower gains from trade