https://www.gargshashi.com/2019/10/perfect-competition.html
LINK FOR PERFECT COMPETITION
IMPORTANCE OF TIME ELEMENT IN DETERMINATION OF PRICE UNDER PERFECT
COMPETITION
BUSINESS ECONOMICS/MICRO ECONOMICS
DR SHASHI AGGARWAL
Q.
EXPLAIN THE IMPORTANCE OF TIME ELEMENTS IN
PRICE DETERMINATION UNDER PERFECT COMPETITION
- ANSWER :
INTRODUCTION TO PERFECT COMPETITION
- EXPLANATION OF
TIME PERIOD AND THEIR SIGNIFICANCE
- DETERMINATION
OF PRICE UNDER VERY SHORT PERIOD AND SHORT PERIOD AND LONG PERIOD.
MEANING
REFERS TO A
MARKET SITUATION WHERE THERE IS LARGE NUMBER OF BUYERS AND SELLERS. THE SELLER
SELL HOMOGENEOUS PRODUCT AT A UNIFORM PRICE. THE PRICE IS NOT DETERMINED BY THE
FIRM BUT BY THE INDUSTRY.
LEFTWITCH,”
PERFECT COMPETITION IS A MARKET IN WHICH THERE ARE MANY FIRMS SELLING IDENTICAL
PRODUCTS WITH NO FIRM LARGE ENOUGH RELATIVE TO THE ENTIRE MARKET TO BE ABLE TO
INFLUENCE MARKET PRICE.
IMPORTANCE OF
TIME ELEMENT IN THE DETERMINATION OF PRICE
PRICE OF THE
GOOD IS DETERMINED WHERE DEMAND IS EQUAL TO SUPPLY. WHETHER THE PRICE WILL BE
INFLUENCED BY DEMAND OR SUPPLY DEPENDS ON THE TIME.
ACCORDING TO
MARSHALL
•
SHORTER THE PERIOD,GREATER WILL BE THE
INFLUENCE OF DEMAND
•
LONGER THE PERIOD THE INFLUENCE WILL BE OF THE
SUPPLY.
IMPORTANCE
OF TIME ELEMENT IN DETERMINATION OF PRICE
PRICE
DETERMINATION IN VERY SHORT PERIOD: - MARKET PRICE OF A COMMODITY WHICH
PREVAILS IN A MARKET AT A PREVAILING TIME. VERY SHORT PERIOD IS THAT TIME
PERIOD IN WHICH SUPPLY OF A COMMODITY CAN NOT BE INCREASED BEYOND ITS EXISTING
STOCK.MARKET PRICE.
SHORT
PERIOD:-REFERS TO TIME PERIOD IN WHICH SUPPLY CAN BE INCREASED ONLY UP TO ITS
EXISTING PRODUCTION CAPACITY IF DEMAND HAS INCREASED.NOT ENOUGH TIME TO INSTALL
NEW MACHINERY NOR FOR THE NEW FIRMS TO ENTER THE INDUSTRY.SUB NORMAL PRICE
LONG PERIOD:
_ IT REFERS TO THE TIME PERIOD IN WHICH SUPPLY OF COMMODITY CAN BE INCREASED OR
DECREASED ACCORDING TO CHANGED CONDITIONS OF DEMAND. NORMAL PRICE.
VERY LONG
PERIOD: - TIME PERIOD IN WHICH BASIC CHANGES CAN BE EFFECTED BOTH IN DEMAND AND
SUPPLY. DEMAND IS INFLUENCED BY CHANGES IN THE SIZE OF POPULATION, ITS TASTES
AND HABITS ETC .SUPPLY IS INFLUENCED BY TECHNIQUES OF PRODUCTION. VERY LONG
PRICE IS SECULAR PRICE.
VERY SHORT PERIOD
DETERMINATION
OF MARKET PRICE:-MARKET PRICE IS THE PREVAILING AT A GIVEN TIME. VERY SHORT
PRICE IS INFLUENCED BY DEMAND.
PERISHABLE GOODS:-
EXPLAANTION
PERIISAHBLE
GOODS PERISH VERY QUICKLY AND CAN NOT BE
STORES LIKE VEGETABLES,FRUIT,MILK ETC SUPPLY OF SUCH GOODS AT ANY TIME IS
FIXED. WHEN DEMAND IS HIGH PRICE WILL BE HIGH AND WHEN DEMAND IS LOW PRICE WILL
BE DETERMINED
DURABLE
GOODS: SOME GOODS CAN BE STORED FOR LONG TIME. FIRMS SELLING THESE PRODUCTS
HAVE RESERVE PRICE BELOW WHICH THEY WILL NOT SELL. SUPPLY CAN BE INCREASED UP
TO A LIMIT.
VERY SHORT
PERIOD DURABLE GOODS
D
EXPLANATION
OS1 IS THE
RESERVE PRICE BELOW WHICH THE SELLER WOULD NOT SELL. WHEN THE D1 THEN HE WILL
BRING OQ1 AND PRICE WILL BE OP1. AS DEMAND GOES ON INCREASING HE WILL GO ON
INCREASING SUPPLY. WHEN THE DEMAND IS D3. HE WILL BRING ALL THE QUANTITY. AFTER
THIS IF DEMAND INCRESES THEN HE CAN NOT INCREASE THE SUPPLY.
SHORT PERIOD
IN SHORT
PERIOD THE INDUSTRY CAN INCREASE THE SUPPLY UPTO EXISTING CAPACITY OF THE FIRM.
THE SUB NORMAL PRICE IS DETERMINED IN SHORT PERIOD.
PRICE DETERMINATION IN THE LONG RUN
NORMAL PRICE
COMES TO PERVAIL IN THE LONG PERIOD. ALSO CALLED LONG PERIOD PRICE. NORMAL
PRICE IS INFLUENCED MORE BY SUPPLY THAN DEMAND.
ALL THE
PRODUCERS WILL GET NORMAL PROFIT
DETERMINATION OF NORMAL PRICE
D
EXPLANATION
DEMAND AND
SUPPLY WHERE INTERSECT EACH OTHER EQUILIBIRUM PRICE WILL BE DETERMINED AT OP.
SUPPOSE PRICE RISES TO P1 THEN DMEAND IS LESS THAN SUPPLY IT WILL BE AUTOMATIC
FALL TO P AND IF PRICE FALL TO P2 HERE THE SUPPLY IS LESS THAN DEMAND THEN
PRICE WILL AUTOMATICALLY SETLLE AT OP.
DIFFERENCE
BETWEEN NORMAL PRICE AND MARKET PRICE
TIME: MARKET
PRICE IS THE PRICE WHICH PERVIALS IN THE VERY SHORT PERIOD AND NORMAL PRICE IN
THE LONG RUN.
EQUILIBIRUM:-MARKET
PRICE IS THAT PRICE WHICH IS THE RESULT OF TEMPORARY EQUILIBRIUM. NORMAL PRICE
IS THE RESULT OF PERMANENT EQUILIBRIUM.
INFLUENCE OF
DEMAND AND SUPPLY:-IN THE DETERMINATION OF MARKET PRICE, DEMAND PLAYS AN
IMPORTANT ROLE WHILE SUPPLY IS PASSIVE BUT IN THE DETERMINATION OF THE
PRICE.SUPPLY BECOMES VERY IMPORTANT AS ADJUST TO DEMAND.
REAL AND PROBABLE
PRICE: MP IS THAT PRICE WHICH ACTUALLY PERVAILS IN THE MARKET. NORAML PRICE IS
THE PROBABLE PRICE.
KINDS OF GOODS:-MP
FOR ALL TYPES OF GOODS BUT NORMAL PRICE ONLY FOR DURABLE AND REPRODUCIBLE
GOODS.
MARKET PRICE CAN
BE LESS THAN OR MORE THAN AVERAGE COST BUT NORMAL PRICE IS ALWAYS EQUAL TO LONG
RUN AVERAGE COST
PROFIT AND LOSSES
:-MP MAY GIVE NP.SNP.MINIMUM LOSS BUT NORMAL PRICE ALWAYS YIELD NORMAL PROFITS
ALONE,
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