Glamor Economics

Chapter 67

Chapter 10 Business Confrontation Under Survival Pressure——Competition and Monopoly
Section 1 No Competition, No Progress—Perfectly Competitive Market

In the Alaska Nature Reserve in the United States, people eliminated wolves in order to protect deer.With no natural enemies, the deer live a very leisurely life. They no longer run around and reproduce in large numbers, causing a series of ecological problems, causing the plague to spread in the deer herd, and a large number of individuals dying.

Later, the conservation staff introduced wolves in time, and a bloody life-and-death competition began between wolves and deer.Under the chasing and predation of wolves, the deer herd had to run nervously to escape for their lives.In this way, except for those old, weak, sick and disabled who were preyed upon by wolves, the physique of other deer became stronger day by day, and the deer herd returned to its former vitality.

The story of the herd of deer shows that competition is necessary, and in human economic life, the role of competition in promoting human development is also very obvious.Perfect competition, also known as free competition, means that a market completely depends on price to regulate supply and demand.Perfect competition has two indispensable factors: the items offered for sale are identical, and there is no product differentiation; buyers and sellers are so many and equal in size that no one buyer or seller can affect the market price.

For example, the wheat market is a typical perfectly competitive market, with thousands of farmers selling wheat and millions of consumers using wheat and wheat products.Since no buyer or seller can affect the price of wheat, everyone is just a receiver of the price and has an equal competitive position.

A perfectly competitive market is the most perfect resource allocation mechanism in the minds of many economists.A perfectly competitive market must meet certain conditions, which mainly include the following aspects:

1. There are many producers and consumers in the market, and no one producer or consumer can affect the market price.Due to the existence of a large number of producers and consumers, compared with the production and purchases of the entire market, the proportion of purchases by any one producer and any consumer of the production is very small. Therefore, any production The individual market behavior of buyers and consumers will not cause changes in market output and prices.In other words, everyone can only be the receiver of the established market price, not the decider of the market price.

2. The products produced by the enterprise are homogeneous and there is no difference.There are many companies in the market, and each company has no difference in product quality and performance when producing a certain product.For consumers, no matter which company's products they buy, they are homogeneous and undifferentiated products, so that many consumers cannot form preferences based on product differences.That is to say, various commodities are completely substituted for each other.

3. Producers enter and exit the market without being restricted by social forces.Any producer's entry into the market or exit from the market is entirely at the producer's own discretion, and is not restricted by any social laws and other social forces.When there is a net profit in a certain industry market, many new producers will be attracted to enter the industry market, which will cause a decline in profits, so that profits will gradually disappear.And when the industry market loses money, many producers will withdraw from this market, which will cause the emergence and growth of industry market profits.Therefore, in a longer period of time, producers can only obtain normal profits, but not monopoly benefits.

4. Market transactions are free and open without artificial restrictions.In trading activities, no matter which commodity seller can freely and openly sell commodities to any buyer, and no matter which commodity buyer can also freely and openly buy commodities from any commodity seller in the market At the same time, the market price also changes with the change of supply and demand in the whole market.No market subject can control market supply and demand and market prices through power, tariffs, subsidies, rationing or any other artificial means.

5. Market information is smooth and accurate, and market participants fully understand various situations.Consumers, businesses and resource owners have a full and complete understanding of economic and technological information.For example, producers not only fully understand the prices of production factors, the cost of their own products, transactions and income, but also fully understand the relevant conditions of other producers' products; consumers fully understand the market prices of various products and all circumstances of their transactions; Readers fully understand the role of labor resources, their prices, and the benefits to them in their various possible uses.Therefore, transactions in the market are carried out in accordance with the market prices that everyone understands, and there is no mutual fraud.

The above aspects are the preconditions that a perfectly competitive market must have, and are actually the obvious characteristics of a perfectly competitive market.

[links to related words]

Imperfect Competition Perfect competition cannot be maintained because there is at least one buyer (or seller) large enough to influence the market price and thus faces a downward sloping demand (or supply) curve.Including various incomplete factors, such as complete monopoly, oligopoly or monopolistic competition.

Competitive Equilibrium The balance of supply and demand in a market or economy characterized by perfect competition.Since neither buyer nor seller alone has the power (dominantly) to influence the market in perfect competition, prices will tend to equal marginal cost and marginal utility.Economists hope that in the market, there will be no government intervention, no constraints of plans and instructions, and there will be a market where there is demand.Whether it is supply competition or demand competition, it will promote a society to develop in a balanced and healthy direction.

(End of this chapter)