- •Харків. Вид. Хнеу, 2010
- •Харків. Вид. Хнеу, 2010
- •Introduction
- •Module 1. Basics of market economy Lecture 1. Basic economic terminology
- •1. Terminology
- •Economic resources
- •2. Economic reasoning
- •Choices made at the margin(край)
- •Three basic economic decisions
- •5. Economic forces
- •6. The role of theory in economics
- •Value judgments
- •Microeconomics and macroeconomics
- •8. Economics and other subjects
- •Lecture 2. Economic systems: capitalism, socialism and mixed economy
- •1. Evolving развитие Economic Systems
- •2. Socialism
- •3. Capitalism
- •Figure 2.1. The circular of income and expenditure in a market economy:
- •Specialization and Exchange обмен
- •4. Differences between soviet-style socialism and capitalism
- •Table 2.1 Capitalism’s and soviet-style socialism’s solutions to the three economic problems
- •5. Mixed Economy
- •Government and the Economy
- •Some modern models of mixed economy
- •6. Transition economy
- •Government price setting.
- •Passive macroeconomic policies.
- •7. Other classifications of economic systems
- •Lecture 3. Supply спрос and demand требование
- •1. Markets: purposes and functions
- •2. Demand
- •The Market Demand Curve and the Law of Demand
- •Table 3.1 a demand schedule for grade a eggs
- •Foundation for the law of demand:
- •Figure 3.2. Changes in demand
- •Figure 3.3. Changes in quantity demanded
- •3. Supply
- •The market supply curve and the law of supply
- •Table 3.2 a supply schedule for a eggs
- •4. The marriage of supply and demand (market equilibrium)
- •Lecture 4. Elasticity of supply and demand
- •1. Price elasticity of demand.
- •2. Price elasticity of supply.
- •1. Price elasticity of demand
- •Determinants of price elasticity of demand
- •3. The proportion of income consumers spend on the good.
- •2. Price elasticity of supply
- •Determinants of price elasticity of supply
- •Perfectly inelastic and perfectly elastic supply
- •Module 2. Basics of micro and macroeconomics Lecture 5. Business firm
- •3. Functions of business firms.
- •1. Terminology
- •Scale of production
- •2. Basic types of business enterprise
- •Pros and cons of corporate business
- •Other types of enterprises
- •3. Functions of business firms
- •4. Management
- •Lecture 6. Production, cost and profit
- •3. Variable costs, fixed costs, and total costs.
- •1. Production relationships
- •Period of Production
- •2. The law of diminishing marginal returns
- •Total product curve and marginal product curve
- •Average Product
- •3. Variable costs, fixed costs, and total costs
- •4. Measuring cost and profit
- •5. Normal profit and economic profit
- •Theories of profit
- •Profit as a pay for input
- •Table 7.1 Annual production possibilities for food and clothing
- •3. Law of increasing opportunity cost
- •4. Economic growth: expanding production possibilities
- •Lecture 8: Macroeconomics: economic growth, business cycles, unemployment, and inflation
- •2. Business cycles.
- •4. Inflation.
- •1. Economic growth and living standards
- •Productivity
- •2. Business cycles
- •Leading Indicators
- •3. Unemployment
- •Types of unemployment
- •4. Inflation
- •Types of inflation
- •Relationship between inflation and unemployment
- •Economic interdependence among nations
- •5. Macroeconomic policy
- •Types of macroeconomic policy
- •Lecture 9. Monopoly, oligopoly and competition
- •1. Monopoly
- •How monopoly is maintained: barriers to entry
- •2. Perfect competition
- •3. Monopolistic competition
- •Product differentiation
- •Price discrimination
- •4. Oligopoly
- •Concentration ratios
- •The competitive spectrum
- •1) Cartel.
- •Forming a cartel: directions and difficulties
- •2) Implicit Price Collusion.
- •3) Price war.
- •4) The Contestable Market Model.
- •5) Price leadership.
- •6) Price rigidity: the kinked demand curve model.
- •7) Entry-limit pricing.
- •A Comparison of Various Market Structures
- •Lecture 10. Money, banking and financial sector
- •2. The definition and functions of money.
- •1. Financial sector
- •Institutions and financial markets
- •Financial institutions
- •Types of financial Institutions
- •Financial Markets
- •Differences among Money Market Assets
- •The role of interest rates in the financial sector
- •References
- •Contents
2. Perfect competition
The concept, competition, is used in two ways in economics. One way is as a state, or type of market structure. The other way is as a process. As a process, competition is prevalent throughout our economy.
Competition as a process is a rivalry among firms. It involves one firm trying to figure out how to take away market share from another firm.
Competition as a state, or market structure, is the end result of the competitive process under certain conditions.
A perfectly competitive market is a market in which economic forces operate absolutely. For a market to be called perfectly competitive, it must meet some stringent conditions:
1. Buyers and sellers are price takers.
2. No influence.
3. The number of firms is large.
4. There are no barriers to entry.
5. Firms' products are homogeneous (identical).
6. Exit and entry are instantaneous and costless.
7. There is complete information.
8. Selling firms are profit-maximizing entrepreneurial firms.
These conditions are needed to ensure that economic forces operate instantaneously and are unlimited by other invisible or visible forces.
3. Monopolistic competition
Imperfect competition exists when more than one seller competes for sales with other sellers of similar products, each of whom has some control over price. Individual sellers in such markets have a degree of monopoly power, which means they can influence on the price of their product by controlling its availability to buyers. Firms can control prices by differentiating their products either by quality or by brand.
Monopolistic competition exists when many sellers compete to sell a differentiated product in a market into which the entry of new sellers is possible. In a monopolistically competitive market:
1. There are relatively large numbers of firms, each satisfying a small, but not microscopic, share of the market demand for a similar, but not identical product. The market share of each rival firm is generally larger than it would have under perfect competition, but it's unlikely that any one firm satisfies not more than 10 percent of market demand.
2. The product of each firm is not a perfect substitute for the products of competing firms. Each seller's product has unique qualities or characteristics that cause some buyers to prefer it to products of competing firms. The product is therefore differentiated from any other product.
3. Firms in an industry don't consider the reaction of their rivals when choosing their product prices or annual sales targets. Because there are a relatively large number of firms in a monopolistically competitive industry, a firm's managers believe that their actions can't significantly reduce the market share of their rivals.
4. Relative freedom of entry and exit by new firms exists in monopolistically competitive markets. It's easy to set up new firms in monopolistically competitive markets. Entry may not be quite as easy as it is in perfect competition because new firms with new brands or product features may initially have difficulty establishing their reputations. Existing firms with established brands and reputations for service are likely to hold some competitive edge over new entrants.
5. Neither the opportunity nor the incentive exists for firms in the industry to cooperate in ways that decrease competition. The firms in a monopolistically competitive market don't cooperate to fix prices in order to increase their group profits. They can't effectively prevent new entrants from responding to profit opportunities by opening rival enterprises.