Category: MicroEconomics

Discuss the view that the Internet is creating markets that are nearer to the model of Perfect Competition

Posted on by Rhys Williams

This was a recent essay title we were given in class (Edexcel Unit 3: Business Economics) which I thought was quite an interesting topic. Below is my essay, where I have mainly focused on 3/4 points as to why I think the internet is creating markets near to the model of perfect competition and them some evaluative points. Please add a comment in you have any other suggestions or evaluation points.

Perfect competition is a market type which meets certain criterion. This criteria is that there are many buyers and sellers, sellers are price takers, there is perfect information known by consumers, there are no barriers to entry, the product is homogeneous  firms are profit maximisers and there are no externalities. [...]

Profit Maximising Calculator

Posted on by Rhys Williams

Sorry for the lack of updates over the last few days, I have been working on a profit maximising calculator which took quite a long time to produce! But it is finally done, you can check it out here. Please make sure you enter the values in the specific format outlined. You can either insert the demand function or the total revenue function (don’t insert both) and the total cost function and then the program will calculate the optimal output and the profit produced in order to maximise profits. To find out how the calculator works in principle read this lesson here. [...]

Specialisation and Division of Labour

Posted on by Rhys Williams

Division of Labour is where a production procedure is split into different stages. Workers are responsible for a particular stage, usually in which their expertise lies. Thus by doing this, the maximum production for a day’s work would increase.

An equal division of labour is where a task is split into separate jobs so that it would take roughly the same amount of time to complete one job as another.

Adam Smith provided an example of this; in a day 1 worker could create a maximum of 20 pins, so 10 workers could create 200 a day. However if the production process was split into 10 different stages, with one worker on each stage the maximum production would dramatically increase to 48,000 pins produced a day. [...]

Extended Property Rights

Posted on by Rhys Williams

• Property rights are considered one of the most fundamental requirements of a capitalist system, and are partly why there is need for government.
• Property rights are the legal controls of the ownership of a good.
• Property rights can be issued through legislature and regulations.
• A property right is the exclusive authority to determine how a resource is used and who it is owned by.
• The lack of property rights makes it hard to identify who is responsible for a negative externality, and who should therefore pay taxes to amend them and to solve the market failure of over-production. [...]

The Invisible Hand

Posted on by Rhys Williams

Below is a quick video made by the Open University briefly explaining the Invisible Hand.

The Invisible Hand is a term coined by the economist Adam Smith in his papers of the Wealth of Nations. He said that governments should adopt a laissez faire policy of leaving the economy to itself, he believed that the economy would work, not due to benevolence (charitable acts) but because each person is out for themselves and this creates a working economy. He uses the example of the baker and the butcher, and states that they don’t produce food out of goodwill but in order to make money. [...]

Merger Case Study: Exxon and Mobil

Posted on by Rhys Williams

Exxon and Mobil were 2 separate American oil companies that merged to form ExxonMobil in 1998. It resulted in the creation of the largest oil company in the world. This allowed it to reduce its costs. The first thing the new firm did was reduce its workforce by 7% (9000 workers) this is an example of avoiding duplication as these workers were doing similar things when the 2 firms were separate and hence weren’t needed in the unified firm. This allowed ExxonMobil to reduce its costs.

It led to a reduction in competition in the oil industry which potentially could have meant that prices weren’t as low for consumers as they could have been if the firms were competing. [...]