Competitive Market
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A competitive market is a market with lots of buyers and sellers, each one relatively small to all of the buyers and sellers present altogether. Even though the competitive market is very common in the economy as a whole, not every market is a competitive market. For example, there are monopolies, duopolies, where only one or two people hold all of the resources to sell, duopsonies, where there are only two buyers, or markets with a dominant firm and a competitive fringe. On the other hand, a competitive market is very welcomed in the economy because of the Coase theorem. People trade to gain from it, and in competitive markets, there are no impediments to trade, meaning that trade will result in social order instead of chaos. In addition, competitive markets are very efficient in the way that doesn’t avoid competition, consumers are able to receive the best quality of products with the best prices, while there is a Pareto improvement, a switch to make possibly one person better but no one worse, for both sides.
The competitive market has three market rules. Firstly, it is key to understand the market’s limitations. When addressing inequality, economists favor policies that minimize intervention and maximize individual choice. Secondly, to protect competition. Markets need referees to prevent anti-competitive behavior, who are antitrust policies, to prevent possible actions such as both companies of a product both charging high to earn more from the public. Lastly, to always give the market second chances.
Market Price
In the competitive market, every single buyer or seller is a price-taker. This means that they have to accept the same market price as everyone else. The market price is determined by supply and demand provided by the public. Two curves can influence the market price–the market supply curve. and market demand curve. The market supply curve shows how many of the product sellers would sell if the market price was at a certain price, also known as producer theory. The market demand curve shows how many products buyers would buy if the market price was at a certain price, also known as consumer theory. These two curves intersect at the market equilibrium, which is precisely the market price (P-axis) shown by bought and sold quality (Q-axis).
Supply and Demand Curves
From the supply and demand curves, information about the price and quantity of a certain product can be derived. If the demand curve moves rightwards, the price and quantity of the price go up; if the supply curve moves rightwards, then the price goes down, and the quantity goes up, and vice versa. In addition, tax is also determined by supply and demand. Suppose sellers are taxed, then the supply curve shifts left; suppose buyers are taxed, then the demand curve also shifts left. This results in tax equivalence, meaning that it doesn’t matter whether the sellers or buyers are taxed, the economic outcome for both sides is the same either way. However, this does not mean that the buyers and sellers share the tax portion equally, it just means that the economic outcome from both sides has the same result.
Marginal Analysis
Marginal analysis is useful when studying individual optimization, the choices of people trying to satisfy their needs or preferences, and microeconomics is simply looking at in what circumstances can these individuals create outcomes that are good for the economic group as a whole. Even so, it is especially useful when looking at the choices of buyers and sellers in the economy. It generates powerful insights and can be used to make accurate pricing decisions with products. Supply curves are also known as marginal cost curves, and demand curves are also known as marginal benefit curves. A marginal cost curve shows the extra cost for one particular seller of producing one more unit of a product to ensure profit maximization, while a marginal benefit curve shows the extra benefit for one particular buyer of consuming one more unit.
For example, when there is a tax on the sellers, the market supply curve shifts left, in other words, it can be comprehended by having the marginal cost curve shifting up. Another example could be if the tax is on the buyers, the market demand curve shifts left, or otherwise the marginal benefit curve shifting down.
Written by The Nine Eves
The Anonymous Helpers (TAH)