Markets, Profits,and Competition
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Markets
- Markets bring buyers and sellers together for exchange
- Examples include a mall, stock market and www.ebay.com
- Voluntary exchange benefits both parties
- People will trade only if they both expect to be better off
- Two types of markets
- Product markets--sale of goods and service
- Resource markets--sales of resources such as labor
Profits
- Profits and entrepreneurs
- Revenues - costs = Profits. Profits are the reward for entrepreneurial risk taking
- Profits as signals
- High profits signal people to get into an activity and low profits to get out
- Uses of profits
- Reward to entrepreneurs, source of funds for growth and research
Competition
- Types of competition
- Price--e.g, grocery stores
- Advertising--e.g., cosmetics
- Product characteristic--e.g, automobiles
- Benefits of competition
- Lower prices, greater variety, more service
- Problems of market power
- Lose the benefits of competition
- How markets answer the 3 Questions
- What to produce--consumer sovereignty
- Firms respond to dollar votes of consumers
- How to produce--competition
- Firms are forced to find most efficient methods
- For whom to produce--ability to purchase and wants of consumers
determines who gets the goods
Copyright 2008,
by the Contributing Authors.
Cite/attribute Resource.
factpetersen. (2007, October 22). Markets, Profits,and Competition. Retrieved November 23, 2009, from Free Online Course Materials — USU OpenCourseWare Web site: http://ocw.usu.edu/university-studies/u-s-institutions/markets-profits-and-competition.
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