Page 21 - Bus101FlipBook

CH 1] Business 101 1-9

Measuring nonfarm business sector labor productivity in the US indicated that it rose
by an annualized 4.6% in the third quarter of 2020 as output increased 43.4 percent and
hours worked increased 37.1 percent. This means that labor increased productivity, 1
producing more goods in fewer hours per capita with the labor force at approximately 67%
of the population that are aged 16 to 65 (Note: not everybody works in the private sector
where these numbers are derived). Real wages earned were up 8% for the year 2020. This
means that (1) more people were working, (2) those working were bringing home more
money, and (3) with more money they could purchase more goods and services which pure competition
improves their standard of living. Situation in which no one
firm in an industry actually
Competition defined influences the market supply
or price.
Four basic types of competition exist in a private enterprise system: pure
competition, monopolistic competition, oligopoly, and monopoly. Firms are classified
on the basis of the relative competitiveness of their particular industry.

Pure Competition law of supply and demand
Pure competition exists when firms are so small or so numerous that no one firm Economic law stating that
can influence the market supply, demand or price in the marketplace. Pure market price is determined
by the interaction of
competition involves similar products, ones that cannot be differentiated from those suppliers meeting the
of a competitor. Agriculture is probably the closest example of an industry operating demands of consumers. A
under conditions of pure competition; and wheat is an example of a product that is mutually agreed price is
similar from farm to farm. reached in the market. This
Finally, the small size of the firms involved in a purely competitive market makes price can be measured and
plotted as curves with their
it relatively easy for owners of any firm to enter or leave that market. Price is thus set intersection identifying a
by total market demand and total market supply—the law of supply and demand. reasonable market price.
A basic principle of economics, the law of supply and demand states that market
prices are identified by the intersection of the supply and demand curves. Supply is supply and supply
what is offered for sale at varying prices and quantities and when graphed it schedule
A schedule of what sellers
represents a schedule of what sellers will offer in the market at various price levels. will offer in the market at
Sellers offer goods for sale to earn a profit and when their production costs exceed various price levels.
what the market will pay (they aren’t making a profit), those sellers will leave the
market place to those who are still making a profit. The supply curve represents how demand and demand
much (quantity) sellers are willing to provide to a market. schedule
Demand as a schedule identifies graphically what demanders (buyers) are willing A schedule showing what
consumers will buy at
to pay for goods and services. The demand curve (graph) represents how much of a various price levels.
good buyers will take at varying prices. The intersection of the supply and demand
curves targets the prevailing price level which is an historical reference point for any

TABLE 1.1 Type of Competition

Type of Competition
Pure Monopolistic
Characteristics Competition Competition Oligopoly Monopoly

Number of Numerous Few to many Few No direct
competitors competitors

Ease of entry Easy Somewhat Difficult Regulated
into industry by difficult by government
new firms

Similarity of Similar Different Can be No directly
goods or services similar or competing
offered by competitors different goods or
services

Control over price None Some Some Considerable
by individual firms

Examples Farms & Associated Press Alcoa Local Utility
Ranches Amazon.com GM Company, Edison
Textbook Publishers Facebook/Twitter Gas Company
Cooperatives Microsoft

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