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An imperfect market on the other hand is composed of three subtypes which are monopolistic competition where many firms compete, oligopoly where there are few firms competing and a monopoly where a single company dominate the market. In a monopolistic market, firm can charge at a higher price in the long run with a restricted output and is therefore inefficient. There are also barriers to entry in the market to protect the market share of the firms. Collusions are also common to maximize profits.
These differences between perfect competition and monopolistic competition has social welfare implications. In a perfect competition, marginal revenue is the same as price and this reflects the optimum utility of goods as price is also equal to marginal cost. Supply also meets the demand at the most efficient level. This is illustrated in Figure 1 where supply and demand achieved equilibrium.
The case is different in a monopolistic competition where there are few or no competition. The tendency of the firm in a monopolistic market is to restrict production as can be shown in Figure 1 to drive prices up as represented by P1. The market then becomes inefficient because firms are not producing at a minimum cost where price is much higher than the cost of production. This has an implication in social welfare as inefficiency would mean requiring more resources to achieve the same utility of good thereby increasing the social cost.
This is not the case in a perfect competition where marginal revenue is the same as price. In the diagram in Figure 2, a competitive market achieves equilibrium where demand is met with supply (MC and AR intersect). It meant that the social service can be had at its cost and is therefore the most optimum level where the needed service is appropriately supplied without waste.
Thus comparing perfect
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“Essay - Microeconomics Example | Topics and Well Written Essays - 750 Words”, n.d. https://studentshare.org/macro-microeconomics/1664520-essay-microeconomics.
But why in our ever changing world, the government has to withdraw its support for higher education and tuition fees in universities have to be increased? The knowledge and skills acquired from basic education is as essential as food and clothing for a simple man wanting to survive his daily life.
The rise in the rents has taken a lead as compared to salary rises, making it difficult for people to afford rents. As a consequence of the sharp rise in the rent the tenants are going into arrears. The article uses the principle of supply and demand for the explanation of the rise in the rents.
Hence according to the given study the price elasticity of demand for petrol in the short run as well as in the long run is inelastic because their PED lie between zero and one. 1b. The short run PED is smaller or relatively inelastic than the long run PED because it is often easier to switch between products in the long run than in the short run (Perloff 2003).
The current account balance can be obtained using the mathematical formula below; CAB = X - M + NY + NCT (Krugman & Wells, 2008). Where CBA is the current account balance X – Represents exports M – Represents imports NY – Represents Net income from abroad NCT – Represents current transfers A budget balance occurs where there is either a deficit or a surplus.
However, there are some goals which may conflict with the other. This is because in order to achieve certain goal, there may be a need to sacrifice another. Because of this, countries need to prioritize their goals for their economies, assess the trade-offs and later on decide on the best way to achieve a certain goal.
211). The number of buses in Utropica is represented by Cobb-Douglas function, which is considered to be linear and homogenous demonstration of constant return by changing of production scale. According to the fact that a sum of indicators’ powers defines type of a function concerning its increase or decrease, we can predict functional behavior beforehand by making the following calculation: F(L, K) = 1.1 + 0.41 = 1.51 Taking into account that calculated figure exceeds 1, it can be concluded that our function will reproduce increasing returns to scale.
The history of monopoly power in the computer industry is in fact extraordinarily clear-cut. It all started with Tom Watson Sr., who learned the fine art of devastating competitors while selling for the then-notorious National Cash Register Corp. By all measures, the callousness of IBM in the 1920s and '30s makes Bill Gates and company look like Santa Claus.
Cross elasticity of demand is calculated by measuring the percentage of change in the quantity demanded divided by the percentage change in the price of a substitute or complement. For example, if in response to a 10% increase in the price of fuel, the quantity of new cars (which are fuel inefficient) demanded decreased by 20%, the cross elasticity of demand would be -20%/10%= -2.