More on Perfect Competition
Read Chapter 8, which provides an overview of the Perfect Competition model and a guide to the elements you need to know in order to understand the model. Be sure to read the sections following the introduction.
1. Introduction to Perfect Competition
Bring It Home
A Dime a DozenWhen you were younger did you babysit, deliver papers, or mow the lawn for money? If so, you faced stiff competition from a lot of other competitors who offered identical services. There was nothing to stop others from offering their services too.
All of you charged the "going rate". If you tried to charge more, your customers would simply buy from someone else. These conditions are very similar to the conditions agricultural growers face.
Growing a crop may be more difficult to start than a babysitting or lawn mowing service, but growers face the same fierce competition. In the grand scale of world agriculture, farmers face competition from thousands of others because they sell an identical product. After all, winter wheat is winter wheat. But it is relatively easy for farmers to leave the marketplace for another crop. In this case, they do not sell the family farm, they switch crops.
Take the case of the upper Midwest region of the United States - for many generations the area was called "King Wheat". According to the United States Department of Agriculture National Agricultural Statistics Service, statistics by state, in 1997, 11.6 million acres of wheat and 780,000 acres of corn were planted in North Dakota. In the intervening 15 or so years has the mix of crops changed? Since it is relatively easy to switch crops, did farmers change what was planted as the relative crop prices changed? We will find out at chapter’s end.
Introduction to Perfect CompetitionIn this chapter, you will learn about:
- Perfect Competition and Why It Matters
- How Perfectly Competitive Firms Make Output Decisions
- Entry and Exit Decisions in the Long RunEfficiency in Perfectly Competitive Markets
Source: Rice University, https://openstax.org/books/principles-microeconomics/pages/8-introduction-to-perfect-competition
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