1. Bellwork
1. Incomes increase. In a graph of the market for bus rides (an inferior good) we would expect:
a. The demand curve to shift to the left
b. The demand curve to shift to the right.
c. The supply curve to shift upwards.
d. The supply curve to shift downwards.
e. Neither the supply nor the demand curve shifts.
2. As a result of the increase in income, we should expect to see that price will – and quantity will -- in the new equilibrium in the market for bus rides.
a. increase – increase
b. increase – decrease
c. decrease – increase
d. decrease – decrease

2. The Perfectly Competitive Market
Economics Standard Students analyze how domestic and international competition in a market economy affects goods and services produced and the quality, quantity and price of those goods
E.Q: What conditions must exist for perfect competition?

3. Market Economy
the market is a system where buyers and sellers exchange goods or services
system continually allocates goods and services to various units with the help of a pricing mechanism
Each market may have a different structure:
the number of sellers or buyers
demand for the commodity
control in the market.
E.Q: What conditions must exist for perfect competition?

4. Two General Types of Markets
the Perfectly Competitive Market [5 main features]
the imperfect market
Monopoly – one firm
Oligopoly – two or more, but few firms
Monopolistic competition – many firms selling differentiated products.
E.Q: What conditions must exist for perfect competition?

5. 5 Features of Perfectly Competitive Market
Smallness of buyers and sellers relative to the market – buyers and sellers are price takers
Homogeneous (identical) product
No Barriers to entry and exit
Many Firms
Perfect information
E.Q: What conditions must exist for perfect competition?

6. Barriers to Entry Start-up Costs
Factors that make it difficult for new firms to enter a market are called barriers to entry.
Start-up Costs
The expenses that a new business must pay before the first product reaches the customer are called start-up costs.
Technology
Some markets require a high degree of technological know-how. As a result, new entrepreneurs cannot easily enter these markets.

7. The Demand Curve Faced by the Firm
since the firm cannot control the market price, owing to its smallness relative to the market, the firm can actually sell as much output as it wants without influencing the price.
the equilibrium price is still determined in the market by the forces of demand and supply P d Q
E.Q: What conditions must exist for perfect competition?

8. Market Market Firm Price D S P* d P* Q QQ Q
Equilibrium price is determined in the market
Once determined, a firm can sell as much as it wants at that price
E.Q: What conditions must exist for perfect competition?

9. Market Market Firm Price D2 D2 D S P2 P2 d2 P* d P* Q QQ Q
Equilibrium price is determined in the market
Once determined, a firm can sell as much as it wants at that price
E.Q: What conditions must exist for perfect competition?

10. Perfectly Competitive Markets
Are efficient
The intense competition keeps both price s and production costs low.
Firms that raise their prices higher than other firms or experience higher production costs would not be able to compete
E.Q: What conditions must exist for perfect competition?

11. What could be barriers to entry?
E.Q: What conditions must exist for perfect competition?

12. Section 1 Assessment
1. Which of the following is NOT a condition for perfect competition?
(1) many buyers and sellers participate
(2) identical products are offered
(3) market barriers are in place
(4) buyers and sellers are well-informed about goods and services
2. How does a perfect market influence output?
(1) Each firm adjusts its output so that it just covers all of its costs.
(2) Each firm makes its output as large as possible even though some goods are not sold.
(3) Different firms make different amounts of goods, but some make a profit and others do not.
(4) Different firms each strive to make more goods to capture more of the market.

13. Assignment
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