Competition

Competition is the economic rivalry among businesses when producers in some industry try to get a larger share of the market. Perfect competition and pure monopoly are the opposite extremes of the market structure continuum. Perfect competition has many sellers of the same product, while pure monopoly has only one. Perfect competition exists when there are many buyers and sellers, none of whom control prices. In contrast, pure monopoly exists when a single firm controls the total production or sale of a good or service.

Four conditions must be present in the market structure for perfect competition to exist:

1. A particular good or service must have many sellers and buyers. The goal of these sellers is to attract enough buyers to their businesses to earn a profit.

The good or service being offered by one competing firm must be similar or identical to those offered by other firms. In such a situation, buyers will have a free choice.

Buyers must have easy access to information on the products and prices. This information allows buyers to make intelligent choices about which goods to purchase.

The conditions necessary for the existence of pure monopoly are very different from those necessary for the existence of perfect competition:

One firm is the sole producer or seller of a good or service.

No close substitute goods are available. Electric power companies are examples of monopolies because each company is the exclusive supplier of electricity in a specific geographic area. While consumers may choose to substitute kerosene lamps and wood stoves for electricity, these substitutes are not close substitutes.

In many countries, airlines are monopolies. For example, only Aviaco, an airline owned by the Spanish government, provides service between Spanish cities. In theory, Aviaco has the freedom to charge any price for airline tickets. In reality, if the price is too high travellers will use alternate forms of transportation, such as automobiles, trains, or buses. In addition, the Spanish government sets limits on the charged prices.

The United States government has determined that four types of monopolies are beneficial to the economy. These monopolies include:

- natural monopolies (American Telephone & Telegraph Company and other public utilities which have the exclusive right to provide service in a specific geographic region),

- technological monopoly which occurs when a firm develops new technology that changes the way goods are produced or creates a new product (General Dynamics),

- government monopolies which provide goods or services that improve the general welfare rather than try to earn profits (the Postal Service),

- geographic monopoly which is the firm, producing and selling a good or service in a specific location. As a rule, a competitor cannot be attracted to the area because of poor business perspectives.

I. Basics of Economics

Economics is the scientific study of the way in which wealth is produced and used. It also studies the choices people make to satisfy their wants and needs. Contrary to popular opinion, economics does not normally include such things as personal finance, personal income, ways to start a small business, etc. The range of problems considered by economists is relatively narrow. They deal with employment, expenditure, interest rates, consumption, transportation, and trade. In relation to everyday life, the economist is more like an astronomer than a weather forecaster, more like a chemist. than a pharmacist, mow like a_professor of hydrodynamics than a plumber.

The basic problem of economics is scarcity_ created by unlimited wants of society and limited resources. Tо achieve this goal, economists must find the most efficient ways to distribute and use these limited resources called the factors of production. They include natural resources, human resources, capital and entrepreneurship. Each factor of production has a place in economic system.

Natural Resources or "Land" are the things provided by nature that go into production of goods and services. They include such things as minerals, animals, forests, even the sun, wind and rain (but only when these things are used to produce goods and provide services).

Human Resources or «Labor» are the physical and mental effort that people put into the creation of goods and services. The price paid for the. use of labor is called wages. Wages represent income to workers, who own their labor.

Capital is something created by people to produce other goods and services. A factory, tools and machines are capital resources because they can be used to produce other goods and services. Тhе term "capital" is often used by business people to refer to money they can use to buy factories, machinery and other productive resources. We can also see an important distinction between capital goods and consumer goods. Capital goods are the manufactured resources that are used in producing finished products. Consumer goods are the finished products — the goods and services that consumers buy.

Entrepreneurship is the managerial or organizational skills needed by most firms to produce goods and services. The entrepreneur brings together the other three factors of production. When they are successful, entrepreneurs earn profits. When they are not successful, they suffer losses. The reward to entrepreneurs for the risks, new ideas and efforts that they have put into the business, is the money that remains after the owners of land, labor and capital have received their payments.