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Pure and Monopolistic Competition

Essay by   •  March 28, 2011  •  Essay  •  740 Words (3 Pages)  •  1,588 Views

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Pure competition is defined by the economists as one of the four market structures in industries. Theoretically, pure competitive markets provide the foundation of supply and demand and prices in such markets would normally move instantaneously to equilibrium. What type of goods represents "pure competition" market? According to the text, the most common examples are fish products and agricultural commodities such as oats, corn, grains, carrots, eggs and other such products (McConnell & Brue, 2004, p.6). All these products in the pure competitive markets have several characteristics in common. First of all, the products are sold in competitive markets where there are a large number of small producer and buyers. Secondly, the products are fairly standardized, in another word, there is no product differentiation. The corns grow in Iowa is truly no different from corns from California. Thirdly, sellers of those products are at the mercy of the market in terms of price, that is, each seller is a price taker as the price is only determined by supply and demand in the market as a whole. A single seller can not change the price freely on a product because the identical product is available to the consumers from hundreds of competitors in the same market. Lastly, any firm can easily enter and exit the industry as wishes mainly because there is no significant overhead, advertising expenses, and legal and technological obstacles.

A pure competitive market is very rare in the real-world. After doing extensive researches, the team members concluded fishing industry is one of the very few and traditional industries that best represent the pure competitive. There are certainly a large amount of fishermen in the fishery that supply a huge amount of fresh fish to the fish consumers. According to the survey conducted by U.S. National Marine Fisheries Service, "the U.S. supply of edible fishery products was 11.2 billion pounds in valued at $3.7 billion in 2004" (Schmitten, 1996). There is a variety of fish available; however, any one fish is fairly standardized. Cod is cod, salmon is salmon and catfish is catfish whatever their geographic origins. Recent survey also shows that "despite occasional subtle differences in color and perhaps even taste, each species is pretty standard. Most consumers can not distinguish between fish that come from the deep sea and those that are grown on fish farms" (Pluta, 2004). Demand therefore becomes extremely elastic because there are so many fishermen providing identical fish in the same market. Furthermore, fish prices are competitively determined by the market price; and the

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