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Markets, Profits,and Competition

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  • Markets bring buyers and sellers together for exchange
  • 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 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


  • 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 January 08, 2011, from Free Online Course Materials — USU OpenCourseWare Web site: This work is licensed under a Creative Commons License Creative Commons License