Compare and Contrast Market Systems and the Role of an Economist Within These Systems.
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Compare and contrast market systems and the role of an economist within these systems.
In today’s economy markets differ according to the number of firms in the market. They differ according to the ease within which firms may enter and leave the market and the ability of existing firms in a market to differentiate their products from those of their rivals. They also differ in terms of the market power. Firms have the ability to set prices above marginal cost, ease the entry of new firms, and strategize behavior while taking into account their rival’s actions (Perloff, 2007). Regardless of market systems, a firm maximizes its profit by setting the quantity so that marginal revenue equals marginal cost.
There are four market systems. Monopolies, oligopolies, and monopolistically competitive firms are price setters, rather than price takers because they face downward with sloping demand curves. In contrast, a competitive firm faces a horizontal demand curve, so price equals its marginal cost. When entry is blocked, as with a monopoly or an oligopoly, firms may earn positive profits; however when entry to the market is free, as in competitive or monopolistic competition, profits are driven down towards zero. Another key difference is that non-cooperative oligopoly and monopolistically competitive firms, in contrast to competitive and monopoly firms, must pay attention to their rivals (Perloff, 2007).
An economist’s role is simple; it is to study the economy. The economist is there to describe the consequences of a monopoly to the laypeople, and hopefully the policymakers so they can prevent such things. An economist, depending on which firm hires them, is also put in place not only to study the current economy, but to predict the future trends of the economy so that both business and government can make more informative decisions for their future business transactions.
Microeconomics Fourth Edition, Jeffrey M Perloff , copy write 2007, (pg 421)
In today’s economy markets differ according to the number of firms in the market. They differ according to the ease within which firms may enter and leave the market and the ability of existing firms in a market to differentiate their products from those of their rivals. They also differ in terms of the market power. Firms have the ability to set prices above marginal cost, ease the entry of new firms, and strategize behavior while taking into account their rival’s actions (Perloff, 2007). Regardless of market systems, a firm maximizes its profit by setting the quantity so that marginal revenue equals marginal cost.
There are four market systems. Monopolies, oligopolies, and monopolistically competitive firms are price setters, rather than price takers because they face downward with sloping demand curves. In contrast, a competitive firm faces a horizontal demand curve, so price equals its marginal cost. When entry is blocked, as with a monopoly or an oligopoly, firms may earn positive profits; however when entry to the market is free, as in competitive or monopolistic competition, profits are driven down towards zero. Another key difference is that non-cooperative oligopoly and monopolistically competitive firms, in contrast to competitive and monopoly firms, must pay attention to their rivals (Perloff, 2007).
An economist’s role is simple; it is to study the economy. The economist is there to describe the consequences of a monopoly to the laypeople, and hopefully the policymakers so they can prevent such things. An economist, depending on which firm hires them, is also put in place not only to study the current economy, but to predict the future trends of the economy so that both business and government can make more informative decisions for their future business transactions.
Microeconomics Fourth Edition, Jeffrey M Perloff , copy write 2007, (pg 421)