With most schools approaching their mid-year exams in both CIE and NCEA here is a mindmap which covers the main points when studying perfect competition. This can be a popular essay in CIE Paper 4 making a comparison with imperfect competition and NCEA AS 3.2 – 91400 Demonstrate understanding of the efficiency of different Market Structures using Marginal Analysis
Adapted from CIE A Level Revision by Susan Grant
For more on Perfect Competition view the key notes (accompanied by fully coloured diagrams/models) on elearneconomics that will assist students to understand concepts and terms for external examinations, assignments or topic tests.
Having just completed Perfect and Imperfect Competition with my Year 13 NCEA class I used a couple of packets of M&M’s to drum home the concept of marginal analysis MC=MR. It has always been something that students have struggled with but I am hoping this experience of creating graphs with M&M’s might help their understanding and when to use the concept.
Profit is maximised at the rate of output where the positive difference between total revenues and total costs is the greatest. Using marginal analysis, the firm will produce at a rate of output where marginal revenue equals marginal cost. Below are a few of the graphs done using M&M’s.
Perfect Competition – Supernormal ProfitMonopolistic Competition – Normal Profit
Supernormal, normal, and subnormal profit only identified what happens to the firm. However it is important to be aware of what is happening in the market as a whole. Take for instance a firm making supernormal profits. The price that the firm charges is determined by what is happening in the market (supply and demand). If a firm makes supernormal profits this attracts other firms into the industry to take advantage of these profits. Therefore the supply of firms in the market increases which in turn reduces the price that firms can charge and they now make normal profits and are in the long-run see fig below.
Just started a 3 day revision course covering the CIE A2 syllabus. One of the areas we covered was market structures. Below is a mind map of the main features of perfect competition. Adapted from Susan Grant’s revision book for CIE Economics
Having just completed Perfect and Imperfect Competition with my Year 13 class I used a couple of packets of M&M’s to drum home the concept of marginal analysis MC=MR. It has always been something that students have struggled with but I am hoping this experience of creating graphs with M&M’s might help their understanding and when to use the concept.
Profit is maximised at the rate of output where the positive difference between total revenues and total costs is the greatest. Using marginal analysis, the firm will produce at a rate of output where marginal revenue equals marginal cost. Below are a few of the graphs done using M&M’s.
Supernormal, normal, and subnormal profit only identified what happens to the firm. However it is important to be aware of what is happening in the market as a whole. Take for instance a firm making supernormal profits. The price that the firm charges is determined by what is happening in the market (supply and demand). If a firm makes supernormal profits this attracts other firms into the industry to take advantage of these profits. Therefore the supply of firms in the market increases which in turn reduces the price that firms can charge and they now make normal profits and are in the long-run see fig below.
With the mock exams approaching for southern hemisphere students here is another of Phil Holden’s revision presentations. This one is on Perfect Competition. Remember the following characteristics:
• All units of the commodity are homogeneous (i.e. one unit is exactly like another). If this condition exists, buyers will have no preference for the goods of any particular seller.
• There must be many buyers and sellers so that the behaviour of any one buyer, or any one seller, has no influence on the market price. Each individual buyer comprises such a small part of total demand and each seller is responsible for such a small part of total supply that any change in their plans will have no influence on the market price.
• Buyers are assumed to have perfect knowledge of market conditions; they know what prices are being asked for the commodity in every part of the market. Equally sellers are fully aware of the activities of buyer and sellers.
• There must be no barriers to the movement of buyers from one seller to another. Since all units of the commodity are identical, buyers will always approach the seller quoting the lowest price.
• Finally, it is assumed that there are no restrictions on the entry of firms into the market or on their exit from it.
ECONFIX 