2. Translate the word combinations given from English into Russian
perfectly competitive industry, to have no effect on, affect the market price, flat
or horizontal demand curve, to be not a perfect substitute, sole supplier, charge
the same price, identical goods, being sold
3. Make nouns of these verbs
believe, confront, affect, face, need, know, sell, assume, restrict, explain, discover
Text
1. Listen, read and translate the text
PERFECT COMPETITION
A
perfectly competitive industry, in which everyone believes that their
own actions have no effect on market price, must have many buyers and
many sellers. Agricultural markets are a good example. In London the
New Covent Garden fruit market confronts many buyers with many
sellers. Neither buyers nor sellers believe their own actions affect
the market price. Firms in a perfectly competitive industry face a
flat or horizontal demand curve. The horizontal demand curve for a
product is the crucial feature of a perfectly competitive firm. For
this to be a plausible description of the demand curve facing the
firm, we really need to have in mind an industry with four
characteristics. First, there must be a large number of firms in the
industry so that each is trivial relative to the industry as a whole.
Second, the firms must be making a reasonably standard product, such
as wheat or potatoes. Even if the car industry had a large number of
firms it would not be sensible to view it as a competitive industry.
A Ford Sierra is not a perfect substitute for a Vauxhall Cavalier.
The more imperfect they are as substitutes, the more it will make
sense to view Ford as the sole supplier of Sierras and Vauxhall as
the sole supplier of Cavaliers. Third, in a perfectly competitive
industry all firms must be making essentially the same product, for
which they must all charge the same price.
Even if all firms in an industry made homogeneous
or
identical goods each firm might have some discretion over the price
it charged if buyers have imperfect information about the quality or
characteristics of the products of different firms in the industry.
If you don't know much about cars you may think
that
a 1970 Ford Cortina being sold for £1000 must be in a better
condition
than a 1970 Ford Cortina being sold for £500. Hence, if no firm in a
competitive industry can affect the price for which it sells its
output, it is not sufficient that all firms are selling a
homogeneous product. We must also assume that buyers have almost
perfect information about the characteristics of the products being
sold so that they know the products of different firms in a
competitive industry really
are identical.
Why don't all the firms in the industry do what OPEC did in 1973-74? If existing firms collectively restrict supply, they can increase the price of their output by moving the industry up its market demand curve. If the analysis of price-taking perfectly competitive firms is to have any relevance we must explain why such collective action is impossible.
One
answer is that, with so many firms in the industry, the costs of
organizing themselves into a cohesive group might be prohibitive.
Think of all the committee meetings that would be needed. Managers
might spend more time negotiating with other firms than organizing
production. Nevertheless, if the market demand curve is very
inelastic, the potential increase in revenue from such co-operation
could be enormous, as OPEC discovered. We need a more profound answer
to rule out co-operation. Thus the fourth crucial characteristic of a
perfectly competitive industry is free
entry and exit. Even
if existing firms could organize themselves to restrict total supply
and drive up the market price, the consequent increase in revenues
and profits would simply attract new firms into the industry, thereby
increasing total supply again and driving the price back down.
Conversely, as we shall shortly see, when firms in a competitive
industry are losing money, some firms will close down and, by
reducing the number of firms remaining in the industry, reduce the
total supply and drive the price up, thereby allowing the remaining
firms to survive.
Language practice