Custom «Competitive Markets» Essay Paper Sample

Competitive Markets

Competition is a common concept in business that plays a mega role in determining the market environment. This essay explores competitive markets with reference to the United States. A competitive market is a market with enough number of both buyers and sellers such that not a single buyer or seller can determine the market price and customer sovereignty is exercised at a specified period of time (AmosWeb, 2010).The essay explains competitive markets and gives examples showing how a competitive market is and is not depending upon the industry. It further seeks to establish if the United States is a competitive market.

It will also give an opinion on what countries with free markets are in the economic sense. The essay will conclusively compare and contrast the countries with free market with those that do not have free markets and finally show how productivity and income levels are affected by the contrast in the two countries.

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Competitive Market

Competition among buyers, forces them to pay their maximum demand price and the competition among sellers forces them to accept their minimum supply price for a given good or service on sale. The market price where demand price equals the supply price is called the equilibrium price. At this price, market equilibrium is said to have been achieved .The equilibrium price is determined by market factors and not by individuals. The main characteristics of a perfectly competitive market are; a large number of small firms, homogeneous products on sale, freedom of entry into and exit out of the market, perfect knowledge of market price and technology. In the short run the equilibrium market price is determined by the interaction between market demand and market supply. In the long run equilibrium market price is determined by other factors like government policies and technology. An example of a competitive market is like in an open air market where:

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Many sellers come to sell similar products freely. They have access to market prices but because they are many, one seller cannot decide the price of a given commodity. Customers come into the market freely to buy from a seller they choose and exit the market at will. The customers have access to the prices in the market but because they are many, one buyer cannot decide the price of a commodity. A deviation or failure to satisfy any of the four characteristics, defies a competitive market.

The development of a competitive electric energy market in the United States was brought by the passage by the U.S. Congress of the Public Utility Regulatory Policies Act of 1978 (PURPA).(Sarad & Colucci, 2000) .USA then rose to become the most competitive market in the world. However, according to the world competitiveness year book, 2010, USA has now fallen from the first place to third place in the ranking of the most competitive countries (The market Oracle, 2010)'

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Opinion on free market economies

Free market economies are where individuals control the production and distribution of goods and services. No government subsidies or tariffs. In my opinion, I think free market economies should be nullified because it only privileges the rich to purchase goods and services which are often highly priced in a free economy. This discriminates the poor from accessing their basic needs which are priced highly.

Comparison and contrast of free and non-free market economies

In both economies, the government is obliged to provide law and order and to ensure that a fair price is charged by the sellers. In a free economy, the government has no control on the market price either through subsidies or tariffs (Economy watch, 2010).In a non -free/socialist economy, the government controls prices by fixing subsidized prices and imposing tariffs. In a free economy, production is privately owned while in a socialist economy productivity is publicly owned. Additionally, domestic producers will have higher incomes due the absence of tariffs and subsidizes while in a socialist economy, domestic producers will have low incomes due to the presence of the tariffs.

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