ETHICS IN THE MARKET Theories and Definitions

 

ETHICS IN  THE  MARKET – Theories and Definitions

 

PERFECT COMPETITION:

A free market in which no buyer or seller has the power to significantly affect the prices at which goods are being exchanged.

 Assumptions of Perfect Competition

The most competitive market structure is pure or perfect competition, which is as competitive as possible.  As previously mentioned, market structures are models that summarize how certain markets are organized and behave.  For each market structure we have a set of assumptions or characteristics that tell us what kind of industries the model will explain.  Only industries that meet the assumptions will behave in the way the model predicts.  The assumptions of perfect competition are:

 

Many buyers and sellers: 

There are so many buyers and sellers in perfect competition that no one of them has any influence whatsoever on the market.  The number of consumers and producers is so great that any one of them is like a cup of water in the ocean – their presence or absence makes no difference at all to the market.

 

Identical or homogenous product: 

Every producer in the market makes exactly the same product – consumers are not able to distinguish between the output of one firm and the output of another.  There are no labels, brands or any other distinguishing features used to make a product look distinct.

 

Excellent information: 

Both buyers and sellers in this market have good information about the product, especially the fact that there are many other producers all making the same product.

 

Relatively free entry and exit:

  Firms are able to move resources in and out of this market relatively easily with little expense.  This makes firms especially quick to respond to changing consumer demand. Barriers are low there.

Perfectly Competitive Free Markets are characterized by the following 7 features:

1.    There are numerous buyers and sellers, none of whom has a substantial share of the market.

2.    All buyers and sellers can freely and immediately enter or leave the market.

3.    Every buyer and seller has full and perfect knowledge of what every other buyer and seller is doing, including knowledge of prices, quantities, and quality of all goods being bought and sold.

4.    The goods being sold in the market are so similar to each other that no one cares from which each buys or sells.

5.    The costs and benefits of producing or using the goods being exchanged are borne entirely by those buying or selling the goods and not by any other external parties.

6.    All buyers and sellers are utility maximizers. Each tries to get as much as possible for as little as possible.

7.    No external parties(such as government) regulate the price, quantity, or quality of any of the goods being bought and sold in the market.

MORAL OUTCOMES OF PERFECTLY COMPETITIVE MARKETS:

·         Achieve a certain kind of justice.

·         Satisfy a certain version of utilitarianism.

·         Respect certain kinds of moral rights.