Goods and services gain more value if they can exchange for something else {market}|. Therefore, economy establishes places or situations in which to exchange goods and services. Main markets are for money, labor, producers, and retail sales. Price is same throughout one market. Low transportation costs and standardized goods and services allow bigger markets. Government services and goods, paid for by taxation, can have no market.
In markets, sellers compete {competition, market}| to sell similar goods or services.
price
Competition forces sellers to lower prices and profits to the lowest level that still allows them to keep selling goods or services. If one seller has lower price, everyone buys from that seller, until supply finishes. Other sellers must lower prices to sell anything.
If price is so low that seller cannot make profit, seller leaves market. This lowers supply and so raises price, allowing other sellers to profit more.
If price is too low, sellers lower production, and make something else, because profit is low for that good or service. Supply becomes less, and price rises.
If price is too high, all sellers have good profit. Existing sellers increase supply. Price lowers. New sellers can enter market to try to earn profit, thus raising supply and reducing price.
expenses
At lowest price, sellers that have higher expenses make less profit. They cannot raise price, because then they can sell nothing. They can only lower expenses.
expenses: cost
For sellers, trying to increase supply raises costs and trying to sell more requires lower prices. Ideally, price equals cost, and businesses make and sell optimum quantity.
effects: good
Competition can increase pressure to lower prices and lower costs. Competition can increase pressure to improve goods and services.
effects: bad
Competition can increase pressure to cheat, use unethical selling practices, and use unethical buying behavior. Competition can cause too many failed enterprises, caught in business cycles. Competition can cause non-productive expenditures, such as for advertising, image-making, or financial maneuvers. Competition can cause distribution, production, and demand inefficiencies. Competition can emphasize greed and winning at all costs. Economies based on winning can encourage monopoly, substandard products, and production values based on inessential factors, such as sex and power. Competition can make differential pricing.
The same product can have different prices in different markets {price discrimination}|, if one market has higher demand elasticity.
In market, exchanges {transaction}| are voluntary and honest, so more exchanges happen, which increases efficiency. Encouraging exchanges allows maximum satisfaction.
Periods {market period}| exist in which supply remains same and price depends only on demand.
Periods {short period}| exist in which plant capacity is constant, but sellers can vary output.
Number of sellers and product type determine market nature {market structure}. Many sellers can sell standardized product in pure competition.
Many sellers can sell small amounts of differentiated product {monopolistic competition}, which emphasizes product design and publicity, because brand name, variety, prestige, and habit affect consumer. Price is higher but equals extra value to consumer. Monopoly and oligopoly can lead to more-efficient management and better technology, which can lower costs. Monopoly and oligopoly markets typically depend on prestige or high sales, rather than profit.
Markets {black market}| dealing in illegal or illegally priced goods and services can develop.
If market has few businesses {oligopoly}|, monopolistic practices can develop.
Competition in some markets {natural monopoly}, such as public utilities, can be socially confusing or bad. If market has only one business {monopoly}| {monopolization}, business can fix prices and use pricing and other devices to keep others out of market. Governments can outlaw agreements to fix prices or outputs and attempts to exclude competition from markets.
Monopolistic practices {collusion}| can be agreeing to fix prices, split market, or otherwise restrain trade.
Monopolistic practices {foreclosure, distribution}| can be trying to curtail competitive product or service distribution.
Monopolistic practices {predatory pricing}| can be selling product below cost to drive competitor out of the market.
Monopolistic practices {tying}| can be forcing people to buy other products when they buy product.
Laws {price ceiling}| or government payments to companies {subsidy} can keep price too low. People's demand rises but is unsatisfied, because businesses do not make more low-priced items.
Producers can limit production {quota, production}| {production quota, market}.
People can receive fixed good or service amounts {rationing, market}|.
Businesses can make more high-priced items, and some do not sell {surplus}|, because public does not have that demand. Government or business keeps surplus in storage {warehouse} {grain silo}.
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Date Modified: 2022.0225