ECONOMICS ASSIGNMENT

Economics Assignment

Economics Assignment

Question 1

Perfect competition describes a market structure whose assumptions are extremely strong and highly unlikely to exist in most real-time and real-world markets. The reality is that most markets are imperfectly competitive. Nonetheless, there is some value in understanding how price, output and equilibrium is established in both the short and the long run in a market that holds true to the tough assumptions of a world of perfect competition (Amos, 1994: 64).

Economists have become more interested in pure competition partly because of the rapid growth of e-commerce in domestic and international markets as a means of buying and selling goods and services. And also because of the popularity of auctions as a rationing device for allocating scarce resources among competing ends. In construction industry there are many companies that are making their own projects. Therefore in this industry there are many suppliers and many customers that have knowledge of the market. Following are the assumptions of perfect competition for construction industry (Amos, 1994: 67).

Basic assumptions required for conditions of perfect competition to exist

Many small firms, each of whom produces an insignificant percentage of total market output and thus exercises no control over the ruling market price.

Many individual buyers, none of whom has any control over the market price - i.e. there is no monopsony power

Perfect freedom of entry and exit from the industry. Firms face no sunk costs - entry and exit from the market is feasible in the long run. This assumption ensures all firms make normal profits in the long run

Homogeneous products are supplied to the markets that are perfect substitutes. This leads to each firms being passive “price takers” and facing a perfectly elastic demand curve for their product

Perfect knowledge - consumers have readily available information about prices and products from competing suppliers and can access this at zero cost - in other words, there are few transactions costs involved in searching for the required information about prices

No externalities arising from production and/or consumption which lie outside the market

Question 2

Economics is the science that concerns itself with economies, from how societies produce goods and services, to how they consume them. It has influenced world finance at many important junctions throughout history and is a vital part of our everyday lives. The assumptions that guide the study of economics have changed dramatically throughout history. In this article, we'll look at the history of how economic thought has changed over time, and the major participants in its development (Leone, 1986: 24).

The Father of Economics

Adam Smith is widely credited for creating the field of economics; however, he was inspired by French writers, who shared his hatred of mercantilism. In fact, the first methodical study of how economies work was undertaken by these French physiocrats. Smith took many of their ideas and expanded them into a thesis about how economies should work, as opposed to how they do work (Morris & Siegel, 1993: 38).

Smith believed that competition was self-regulating and that governments should take no part in business through tariffs, taxes or any other means, unless it ...