In conditions of perfect competition, the labor market is characterized by the following features:
labor is offered by numerous skilled workers with equally high qualifications;
a very large number of firms operate in the labor market;
neither firms nor employees are able to significantly influence the market rate wages due to their large number.
In conditions of imperfect competition in the labor market, there are the following factors:
The presence of each company competitors in the field of labor;
the activity of the state in the labor market;
the activities of trade unions in the labor market.
In conditions of imperfect competition and with full employment of the population, if an individual firm carries out an additional recruitment of workers, then it will be forced to pay higher wages in comparison with other firms, and high wage rates will be paid not only to those who are newly hired, but also to old workers. Under such conditions, the firm will incur increased wage costs.
The activity of the state in the labor market is reduced to the following points:
regulation of working hours;
regulation of the duration of holidays;
regulation of the minimum wage.
The activity of trade unions in the labor market is reduced to the following points:
· Trade unions contribute to the expansion of demand for labor. They protest against the increase in unemployment, oppose layoffs of workers laid off from production.
· Trade unions help to reduce the supply of labor for foreign workers, women's and children's labor.
· Trade unions oppose the reduction of working hours, and also promote the growth of wages through negotiations with employers.
Wages: types, forms and systems
Wage is the price of labor, i.e. the amount of money paid in the form of remuneration for work.
Types of wages:
· nominal;
real.
Nominal wages- the amount of money received by an employee for a certain period of time (week, month, year, etc.).
Real wage is the quantity of goods and services that can be purchased with nominal wages.
Unlike real wages, nominal wages do not take into account the dynamics and level of prices.
The level of real wages depends on the following factors:
the level of nominal wages;
the level of prices for goods and services;
the level of taxation.
where is the real wage;
Nominal salary;
H - taxes and other deductions;
P is the price index for consumer goods and services.
Forms of wages:
time-based;
piecework.
Wage systems:
Simple time-based
time-bonus;
direct piecework;
piece-rate premium;
Piecework-progressive;
Indirectly piecework;
· chordal;
contract;
collective contractor.
capital market. Loan interest: types and factors
Influencing him
Capital are the means of production created by human labor.
Types of capital: main capital; working capital.
Fixed capital functions in production for a long time and transfers its value to finished products slowly in parts, as it wears out. Fixed capital includes: buildings, structures, equipment, vehicles, etc.
Working capital fully transfers its value to finished products in each production cycle and must be constantly renewed from the proceeds from the sale of products. To working capital include: raw materials, materials, finished products, cash on the current account and at the cash desk, etc.
Capital can be presented in cash and in kind.
Physical depreciation of capital is the loss of its properties by capital over time: the longer and more intensively the equipment is used, the greater its physical wear and tear.
Obsolescence- this is the process of depreciation of fixed capital due to the appearance of cheaper or more modern equipment.
Percent is the income received by the owner of the capital.
There are two approaches to the essence of interest:
Interest is the price paid for the use of capital as a means of production. For example: it is a rent of 10%, which is paid for the use of equipment and premises.
Interest is the price paid for the use of capital as financial resources. For example: this is the rate for a loan - 20% per annum.
Two types of interest:
nominal - this is the rate of interest without taking into account the rate of inflation.
Real is the nominal interest minus the rate of inflation.
For example: if the nominal interest is 30% and the inflation rate is 40% per year, then the real interest is -10%, i.e. negative. Consequently, the money that the firm returns to the bank for using the loan (ie, the principal and interest on the loan) has less purchasing power than the loan that the bank provided to the firm earlier.
Loan capital market- a set of financial transactions for the provision and receipt of loans and borrowings.
The percentage level depends on the following factors:
1. Risk. If there is a possibility of non-repayment or delay in repayment of the loan by the borrower, then the interest is set at an increased rate.
2. Deadline. The longer the term for which the loan is issued, the higher the interest rate on the loan.
3. Conditions of competition. If a bank has monopolized the monetary sphere of a given city or region, it can set a higher rate for a loan.
Loan interest- the rate of payment received by the lender for the loan.
where - today's (discounted) value of future income;
Annual future income from capital resource;
r is the rate of bank interest;
t is the number of years.
where is the share price;
D - dividend;
The rate of interest.
Stocks and bods market
The securities market contributes to the redistribution of financial resources and material resources between various spheres and sectors of the economy, the inflow of funds into promising sectors and the outflow of funds from unpromising ones.
The value of securities is determined on the over-the-counter and exchange securities markets. The main instrument of the exchange securities market is the stock exchange.
Types of securities market:
· organized - purchase and sale of securities is carried out through auction exchanges (Tokyo, Montreal, London, New York);
unorganized - purchase and sale of securities is carried out from hand to hand;
· primary - on it the purchase and sale of securities for the first time put into circulation is carried out;
Secondary - securities of the second and subsequent issues are traded on it.
An indicator of the activity of stock exchanges are indices, which are specific to each particular stock exchange. The New York Stock Exchange uses the Dow Jones index, the maximum value of which can reach over 5 thousand points. The Dow Jones index is determined by the price of first-class stocks of the thirty most large companies USA.
Types of securities:
1. government treasury bills - debt obligations of the government.
2. bonds - give holders the opportunity to receive a fixed percentage.
3. shares are a type of securities, indicating the owner's contribution to authorized capital joint-stock company.
4. bills of exchange are debt obligations of the subjects that issued them into circulation
5. certificates of deposit are cash deposits of entities that can be transferred, donated, pledged, etc.
10.7. Land market. Land rent. Land price.
Rent- regularly received income from capital, property, natural resources or land that does not require entrepreneurial activity from the recipient.
Under economic rent refers to the price paid for the use of natural resources (land).
Let's make the following assumptions:
land is used for the production of agricultural products of only one type
All lands are equal in fertility and productivity.
The land market is characterized by perfect competition.
Let's build a graph that characterizes the relationship that develops in the field of land rent (Fig. 10.2). The land supply function is perpendicular to the land quantity axis, i.e. the supply of land is absolutely inelastic, since the area of land is usually a constant value and the size of land plots rarely changes.
Figure 10.2 - Land market
The demand for land depends on the following factors:
the size of the rent;
income received from land plot;
Demand for agricultural products.
Demand for agricultural products depends on the price of it, with an increase or decrease in price, demand increases or decreases accordingly. The demand function for land then moves down to the left or up to the right, while the land supply function remains unchanged.
The following concepts should be distinguished:
Land rent is the price paid for the use of land.
The price of land is the price at which land is bought and sold, in other words, it is a capitalized rent equal to the amount of future payments that the owner of the land will receive if he rents it out.
Rent = Rent + Depreciation + % on invested capital.
Let's drop the assumption that all lands are the same, because there are always differences in the level of productivity, fertility and location of the land. In this regard, different lands bring different incomes, and land tenants do not bear the same costs.
Differential rent- this is the income that the landowner receives due to higher yields, fertility and better location of the land.
Owners of the best plots of land will have lower average costs per unit of agricultural output. In this regard, they will receive a higher income, and the owners of inferior land will have large costs and be content with only a normal profit.
Figure 10.3 - Definition of differential ground rent II.
Since the supply of land and other natural resources is perfectly inelastic to SS, demand is the only effective factor determining land rent. Expansion (from D 2 to D 1) and reduction (from D 2 to D 3) of demand leads to significant changes in the amount of rent (from R 2 to R 1 and R 2 to R 3).
Perfect competition labor market characterized by properties such as:
1) homogeneity of the labor force (same qualifications);
2) high labor force mobility;
3) all subjects operate in the market in isolation, without entering into any agreements with each other;
4) no one can influence the level of wages, which are formed spontaneously.
This form of market organization is ideal and in real life does not occur.
In a perfectly competitive labor market, supply is provided by households and there is a direct dependence on the level of wages, and labor is demanded by firms that seek to maximize their profits. Therefore, demand is based on the cash income that a firm can receive when using an additional unit of labor (MRP). Since the MRP in short term decreases with an increase in the volume of labor used, then the demand for labor is inversely related to the level of wages. As a result of the interaction of supply and demand, an equilibrium wage is formed, at which everyone who wants to find a job finds it, and firms completely fill vacancies in their enterprises. Consequently, full employment is formed, that is, there is no unemployment. (Fig.8.7)
Fig. 8.7 Equilibrium in the labor market of perfect competition
In a perfectly competitive labor market, wages for work of equal skill under equal working conditions are the same in all places and in any form of use of this labor and are equal to the marginal productivity of the worker or the additional income that this worker brings to the firm, that is, each worker receives a salary that corresponds to his contribution to production. The assumption that the owners of factors of production receive income in accordance with their marginal productivity is known as marginal distribution theory . In this case, we can talk about the implementation principles of social justice in market performance. If this principle is implemented, then it can be argued that there is no exploitation labor capital. In economic theory under exploitation the situation is understood when the capital illegally withdraws part of the earned income from the subject and the employee does not receive a salary equal to the MRP (point of view of A. Pigou, D. Robinson). E. Chamberlin argued that exploitation exists in society when there is no free competition in the market for goods. This, from his point of view, means that all factors of production receive a reward less than their contribution to production (MRP) and they are all exploited, but such exploitation allows firms to avoid bankruptcy. There is also the Marxist theory of exploitation, which states that workers receive only a part of the results of their labor, and the rest is appropriated by the capitalist free of charge.
8.2.3. The labor market is imperfectly competitive.
In real life, the labor market acts as market of imperfect competition . This is due to the fact that, on the one hand, firms, when hiring workers, can dictate their conditions regarding the level of wages, that is, form a monopsony market, and on the other hand, workers can unite and act as a single organized force, demanding higher wages, that is, .e. a monopoly market is formed.
Monopsony market It is typical for relatively small settlements where there is one or several large enterprises, on which the bulk of the workforce of a given city is concentrated. Owners of labor are a relatively immobile factor of production in professional and geographical aspects. A large enterprise acting as a monopsony in the market must take into account the operation of the law of supply, that is, offer higher wages if it wants to hire more workers. Wherein marginal cost the firm's cash flow will grow faster than the wages offered. (Table 8.3)
This firm will be in a state of equilibrium, that is, it will hire the optimal amount of labor, provided that the marginal cost of using labor in monetary form is equal to the demand for labor. The firm sets the salary based on the supply of labor at the optimal level of employment. The appointment of a higher salary means the creation of an excess supply of labor, and a lower one - a shortage of those willing to work (Figure 8.8).
Table 8.3
Labor supply in a monopsony market
|
Volume of labor ( L) |
salaries ( w) |
General costs to work ( TS= |
marginal cost to work ( MRC |
)
Fig. 8.8 Equilibrium in the labor market of monopsony
Thus, fewer people work in a monopsony market than in a perfectly competitive labor market. Therefore, we can talk about the existence of the unemployed. Wages in the labor market are lower than in a perfectly competitive labor market. On this basis, it can be argued that the company appropriates part of the labor of hired workers for free, that is, there is exploitation.
The labor market can be established monopoly on the part of the seller of labor services. This may be the owner of a valuable labor service or a trade union, that is, an organization created to represent the interests of labor in negotiating labor contracts regarding wages, working conditions and additional benefits. It acts as a collective agent with the exclusive right to negotiate on behalf of its members.
There are two types of trade unions:
association of workers of one profession (trade union of miners in England);
an association of workers in a particular industry (trade union of workers in the automotive industry in the United States).
Trade unions as their goals put:
a) salary increase individual worker;
b) an increase in the wage fund of all employees;
c) ensuring employment (preservation or creation of more jobs).
Goal Data can be achieved in three ways :
Negotiating by putting pressure on employers with the threat of a strike;
Limiting the supply of labor;
Stimulating demand for products created by union members.
Since trade unions are monopolists, they must take into account the operation of the law of demand. Because of this, they must accept lower wages if they wish to increase the number of workers employed. Wherein marginal product labor in monetary terms (MRP L) will decrease faster than wages (Table 8.4).
Table 8.4
Demand in the labor market monopoly
|
Volume of labor ( L) |
salaries ( w) |
Total income labor owner ( TR= |
marginal revenue labor owner ( MRP |
)
Rice. 8.9 Monopoly labor market
Therefore, if unions wish to establish highest possible salary, then they must focus on such a number of hired workers that the marginal product of labor in monetary terms is equal to the volume of labor supply, which, as we remember, is a function of wages. In this case, when negotiating a collective agreement, they can demand (up to the threat of a strike) to establish a salary that corresponds to the demand for labor with a given volume of hired labor (Figure 8.9).
Such actions of the trade union lead to the fact that wages are set higher than in the labor market of perfect competition, but fewer people work, that is, unemployment occurs. Workers receive a wage higher than their contribution to production, that is, economic rent. In this case, one can speak of the exploitation of capital by labor, since the owners of capital must give part of their income to the workers.
If unions want maximize payroll, then they must achieve such a salary level that MRP = 0 (the maximization condition - the first derivative is equal to zero). At the same time, this leads to an increase in the number of workers, but cannot solve the problem of unemployment.
If trade unions unite workers of the same profession, then they can achieve the maximum level of wages at the expense of labor supply restrictions(Fig.8.10). In this case, the labor supply curve is vertical. This is due to the fact that trade unions are seeking legislation from the government, according to which only people with a certain profession and qualifications can be hired, which is confirmed by the relevant documents and the passing of a qualification exam. Because of this, the supply of labor is limited in comparison with the demand, and this makes it possible to demand higher wages. The consequence of such actions is the incomplete satisfaction of society's needs for appropriate services. There is a shortage of specialists in the labor market, whose salaries, as a rule, are higher than in the market of perfect competition.
Figure 8.10 Labor supply limitation and equilibrium
Most often, this situation occurs if the employee is the owner of especially valuable labor services, that is, a highly skilled worker. He may demand high pay for his work (for example, talented athletes, lawyers). More skilled workers receive a steady surplus income - economic rent, payment for a rare resource - their skills or abilities.
The best way to achieve the goals of trade unions is stimulation of demand for products, created by union members, since in this case the demand curve shifts up and to the right, therefore, a new equilibrium is formed, which is characterized by higher wages and more labor used. However, the ability of trade unions to use this method is limited, since the demand for labor may increase if the demand for final products increases, labor productivity increases, etc. Unions can increase demand for products if they get legislation to restrict imports of products that compete with products created by union members.
In the labor market, there is often bilateral monopoly situation , that is, a situation where both the employer and employees have the opportunity to put pressure on the level of wages. It is set in the interval and will depend on the strength of each side and the willingness to compromise (Figure 8.11). As a rule, if the conclusion of collective agreements falls on a period of economic crisis and high unemployment, then employers have more opportunity to influence the level of wages. If there is economic growth in the country, then a high demand for labor is formed and this enables the trade unions to insist on their demands.
Figure 8.11 Bilateral monopoly market
In many countries, trade unions are viewed as organizations that monopolize the market and, accordingly, worsen the conditions for the development of the national economy. Therefore, a negative attitude is being formed towards them on the part of business and the state, which introduces some restrictions on the activities of trade unions. For example, in some countries civil servants do not have the right to strike.
It should be noted that the factor modern conditions the role of highly skilled labor is growing, which firms understand and in order to retain qualified personnel, they show social concern, thereby undermining the activities of trade unions. This was reflected in system of human relations - a system of relations built on increasing the employer's attention to working conditions and relationships between subordinates and superiors; expansion of the system of social welfare of the employee in the company; change in leadership style; improving the system of professional selection, training and advanced training of employees; methods of rationing and remuneration; enrichment of the content of work (quality circles, employee engagement programs, self-managed groups, etc.)
Job offer. The supply of labor can be considered by us, as it were, at three levels: firstly, the supply of hours of labor by an individual worker, secondly, the supply of a certain number of workers to the employer, and, thirdly, the total supply of this type of labor in the market.
From the point of view of an individual, labor is a negative good or a good with negative utility. The negative utility of labor is determined by the fact that, on the one hand, labor takes up time that could be spent on leisure, and, on the other hand, work can be unpleasant in itself. Hence, each additional hour of labor increases negative utility. In this regard, we can proceed further negative marginal utility of labor.
The negative marginal utility of labor is the additional sacrifice that the worker makes for the extra unit of time worked.
The negative marginal utility of labor increases with each unit of time worked (for example, an hour). This is due to two reasons. First, the less time left for leisure, the greater the negative utility of sacrificing each additional hour of leisure. Secondly, the aversion (irritation, fatigue, etc.) of each additional hour of work is higher, the longer the working day lasts.
The negative marginal utility of labor determines the positive slope of the labor supply curve for an individual worker. The reason for this is that in order to stimulate a person to work more hours a day, it is necessary to compensate him for the increasing negative utility from work. For example, this explains why overtime work paid more than regular work.
However, under certain circumstances, the labor supply curve can bend back as shown in Fig. 7.2. The explanation for this phenomenon is that there are two oppositely directed effects on the supply of labor.
Rice. 7.2 Curving back labor supply curve.
On the one hand, the higher the wage rate, the more labor a person seeks to offer, since as this rate rises, the sacrifice in the form of unearned income (and, consequently, unrealized consumption) that the individual who indulges in leisure becomes greater. Therefore, he, as it were, "exchanges" leisure for income. It is the substitution effect of a wage increase .
The substitution effect of a wage increase means the worker's desire to replace leisure with income, since a unit of leisure time is associated with a higher opportunity cost than a unit of labor time.
On the other hand, as the wage rate rises, people may begin to feel that they can afford to work less but have more leisure time. It is called the income effect of a wage increase.
The income effect of a wage increase means the desire of the worker to replace income with leisure, since a unit of labor time is associated with higher opportunity costs than a unit of leisure time..
The interaction of these two effects determines the slope of the labor supply curve for an individual worker. It is generally assumed that the substitution effect outweighs the impact of the income effect, especially when wage rates are low. In this case, their increase acts as an incentive to offer more hours of work. However, it is not at all excluded that, on the contrary, the income effect outweighs the substitution effect. This is especially likely at high wage rates. This is when the labor supply curve begins to curve back. On fig. 7.2 this happens from the moment when the wage rate reaches the value W 1 .
The Russian reality of the 1990s provides many examples to illustrate the interaction of these effects. For example, secondary school teachers who receive extremely low hourly wages try to work as many hours a week as possible. They have a substitution effect that significantly outweighs the income effect. And this is understandable, since even in the case of timely salary payment, the teacher is able to provide an extremely meager subsistence level with a classroom load of at least 30 hours a week (it should be borne in mind that a teacher's extracurricular workload is almost equal to the classroom one).
On the other hand, imagine that the teacher of English language suddenly she was lucky and she found a job as an office manager in a foreign company with a salary of $1,000 a month. It is impossible to imagine that with such a salary, she will earn extra money at school on Saturdays. She would rather fly to Cyprus for the weekend or just do nothing.
In more detail, the operation of the substitution effects and the income from the increase in the wage rate is shown in Fig. 7.3. Leisure hours are plotted on the x-axis ( H). Assume that an individual can split 16 hours a day between work and leisure (not including 8 hours of sleep). At an hourly rate of CU 4 per hour, this individual is able to either earn a maximum of CU 64. per day, or rest 16 hours a day and not earn anything, or choose some intermediate option for distributing time between work and leisure. All possible combinations of work (income) and leisure in such a situation are represented by the budget line AT 1 .
Rice. 7.3 Income-leisure dilemma (substitution and income effects in labor supply).
What particular combination of income and leisure would the individual prefer? To answer this question, we need to introduce indifference curves between income and leisure. As we know from ordinal utility theory, the optimum is reached where the budget line is tangent to the indifference curve. This is also true in our case. Suppose the optimal combination is determined at the point a where the individual spends 6 hours on leisure and works 10 hours a day (i.e. his income will be CU 40 per day).
Further assume that the wage rate has risen to CU8. per hour, other things being equal. Now we're dealing with a new budget line AT 2. It has a common point with the budget line AT 1 on the x-axis (because the total number of hours divided between income and leisure has not changed), but it connects to the y-axis at twice the distance from the origin as the line AT one . Having taken all 16 hours of work, our individual is now able to earn CU 128. per day.
Having found a new optimum (say, at the point b), we find that for a given individual, the substitution effect dominates the income effect as a result of the wage increase. He replaced 2 hours of leisure time with additional income of CU16. Now he rests not 6, but only 4 hours a day, and, accordingly, he works not 10 hours, but 12 hours. His income rises from CU40 to CU40. up to CU 96
Then suppose that the wage rate is raised again (from CU8 to CU10 per hour). However, now the new optimum at the point With on the budget line AT 3 indicates that the supply of labor, despite the increase in wages, has declined. The individual offers 1 hour less labor and, on the other hand, prefers to rest 1 hour more. This means that, on the contrary, the income effect dominates the substitution effect. His income at 11 hours of work rises to CU 110. and he prefers to work somewhat less. As a result, the labor supply curve now "bends back."
With a perfect labor market, the supply of labor of employees of a certain profession to an individual firm is absolutely elastic (Fig. 7.1, graph BUT). Imagine a small firm, who turns to the translation agency with a request to find an interpreter for negotiations with a foreign partner for several days. Such a firm accepts the translator's hourly rate of payment as it has developed in the market for these services.
Next, we turn to the supply of labor of employees of a certain profession not to a separate firm, but to the labor market of workers in this profession. The market supply curve has a positive slope. The higher the rate of payment for an hour of work of a certain type, the more people express a desire to do this work.
The position of the market labor supply curve is determined by the following factors. First, the available number of workers with the necessary qualifications. Secondly, the nature and conditions of work (for example, light or hard work, prestigious or non-prestigious, dangerous or not, etc.). Third, wage rates and non-monetary benefits in other jobs.
A change in the wage rate causes a movement along the supply curve. Whereas changes in one of the above factors cause shifts in the supply curve.
Elasticity of labor supply shows the response of the proposal to a change in the wage rate (labor price). This reaction depends, firstly, on the difficulties and costs associated with changing jobs, and secondly, on the time period under consideration. Both of these circumstances can be combined into one and called "labor mobility". The greater the difficulty and cost of changing jobs, and the shorter the time period under consideration, the less mobile labor will be, and hence the less elastic the supply of labor.
Low mobility (immobility) of labor can be generated by two groups of factors. First, it can be about territorial immobility. It is associated with:
The financial costs of moving;
Inconveniences caused by moving;
Established family and community ties;
housing problems;
problems with social services and their quality (for example, the low level of education in another region);
Higher living expenses;
Uncertainty, imperfect knowledge of the conditions in the new place.
However, even if it is possible to find another job in the same city, people may still be unable or unwilling to take that job. Occupational immobility associated with:
Lack of the necessary qualifications or ability to perform other work;
Worse working conditions or fewer additional benefits in a new job;
Lack of information about job vacancies;
It is clear that labor mobility is higher when new jobs are offered in the same area (do not require relocation, change of housing), suggest the same skill level, or when people are well informed about new jobs. Also, labor mobility is higher in the long run, when people have enough time to acquire new skills, and when the education system can adapt to the new demands placed on workers.
Markets are either perfect or imperfect.The characteristics of a perfectly competitive market are:
A large number of independently operating firms and buyers, all of which are so small and few in number that they are not able to individually influence the price of the product;
- homogeneity of the product, i.e. the products offered by competing firms are not only identical in physical properties, but also perceived as the same, so that buyers do not see the difference between products from different manufacturers;
- free entry to the market and exit from the market;
- perfect awareness of sellers and buyers about the state of the market.
In a perfectly competitive market, an individual firm does not control the prices at which it sells its products, since the price is determined by the conditions of aggregate supply and demand. An individual firm does not feel pressure from other firms, but feels the behavior of competitors as a whole. The firm accepts the price as something beyond its control and adjusts its output at a given price and its own costs so as to obtain the maximum possible profit.
As soon as all the features of a perfect market are violated, we are dealing with imperfect markets. In general, a perfect market can exist only hypothetically. The imperfect market structures dominating the real market include monopoly, oligopoly, monopolistic competition. Active price management is possible only in imperfect markets. The more imperfect the market, the more freedom for the pricing policy of the firm.
When classifying markets, they distinguish labor markets, financial markets, capital goods, goods (products and services), and technologies. In turn, these markets are subdivided into narrower ones.
For example, the market for goods (products and services) consists of independent, albeit interconnected markets:
Natural raw materials, agricultural products, industrial products;
- consumer goods, including food and non-food;
- services, including industrial and consumer.
In turn, each of these segments is subdivided into markets for individual products.
Markets can be classified according to various criteria:
According to the functional purpose of objects of market relations - consumer goods and services, industrial goods, intermediate goods, know-how, raw materials, labor, securities, shadow, secondary raw materials, etc.;
- geographical location - local, regional, national, world;
- degree of restriction of competition - monopolistic, oligopolistic, monopsony, free, mixed, etc.;
- industries - automotive, oil, agricultural raw materials, food products, etc.;
- the nature of sales: wholesale, retail.
According to the degree of restriction of competition, markets can be divided based on quantitative and qualitative parameters.
The classification and characterization of markets by quantitative parameters is carried out on the basis of the quantitative composition of partners in the market (buying and selling entities) and the significance of its participants.
On this basis, market partners are distinguished according to the principle "many - several - one". Through various combinations of these three signs, under the influence of supply and demand, various forms of the market are determined.
Polypoly is a type of market structure in which an unlimited number of sellers and buyers can operate on the market for a particular product.
Oligopoly is a type of market structure in which several large firms monopolize the production and sale of the bulk of a certain type of goods and conduct non-price competition among themselves.
A monopoly is a type of market structure in which only one large firm, which has complete control over prices, provides all buyers with a certain type of product.
Oligopsony is a type of market structure in which there is a group of buyers of a particular product.
Monopsony is a type of market structure in which there is a monopoly of a single buyer of a certain product.
When characterizing the pricing scheme in the markets of agricultural products, in most cases it is necessary to use the form of "polypoly": many business entities (agricultural producers) offer products to a fairly large number of buying entities (sellers or consumers).
Classification and characteristics of markets by qualitative parameters:
Perfect and imperfect;
- organized and unorganized;
- with limited and unlimited entry;
- free and adjustable.
Perfect markets are said to be in the event that five conditions are simultaneously met:
Objective homogeneity of products is ensured - they are considered by both the seller and the buyer as equivalent and are freely exchanged for each other;
- the market cannot be dominated by personal preferences - all its participants are equal in rights;
- there should be no spatial differences between the seller and the buyer, who meet in the same place to conclude a transaction (this condition is determined by the fact that perfect markets are punctual);
- there should be no time differences during the transaction - the same product is made available to potential buyers by all sellers at the same time;
- full market permeability, that is, all offering and buying entities must be sufficiently informed about the situation on the market.
The first four conditions correspond to the state of homogeneity. If there is no market permeability, but the conditions of homogeneity are met, one speaks of temporarily imperfect markets.
In reality, perfect markets can exist only when they are spatially and temporally defined very narrowly (collective-farm markets in Russia, a bazaar in Central Asia), so the division into perfect and imperfect markets serves to consider the pricing process primarily in an abstract form.
Markets are said to be imperfect if at least one of the first four conditions is not met.
Organized and unorganized markets. In an organized market, pricing in a country or region occurs in accordance with established rules and (or) through special institutions (exchanges, auctions). In other cases, we are talking about unorganized markets, in particular the markets for urgent goods, regional and local commodity exchanges and auctions.
Markets with limited and unlimited entry. The access of producers and buyers to individual markets may be limited by economic conditions or by legal regulation (the requirement for a certificate of a certain qualification, etc.). For example, a ban on the sale of ethyl alcohol throughout Russia, except for the regions of the Far North.
AT agriculture The access of potential producers to the markets is formally free, but in reality it is limited by imperfect legal regulation land relations.
Free and regulated markets. If the price of a product is formed only by market participants, one speaks of a free market. If the state intervenes in the process market pricing are talking about a regulated market.
The above generally accepted classification is also characteristic of the food market, and in accordance with the functions performed, it is further classified according to various criteria.
On a territorial basis, they distinguish the world market, the market of interstate entities (EU, CIS), domestic markets of the state. Domestic markets are divided into national, regional and local markets.
According to the level of security, the market of food-exporting countries and the market of food-importing countries are distinguished.
According to the forms and stages of the movement of goods in the sphere of circulation and the scale of the transactions of sale, the wholesale market and the market are distinguished. retail food.
Among the economic indicators, the main place is occupied by the size and structure of income per person and family. A set of goods should be designed for the purchasing power of various categories of consumers, including those producing goods not only for the rich, but also for people with an average and low income.
In this case, the manufacturer, on the one hand, increases profits by expanding market segments, on the other hand, sales volume, and thereby strengthens its social reputation in the food market.
Further classification can be carried out according to the terms of use and storage of goods (the market for durable goods and perishable goods); on a product basis (grain, meat, dairy, potato and other food markets).
perfect competition market
The terms "perfect competition", "perfect market" were introduced into scientific circulation in the second half of the 19th century. Among the authors who first used the concept of a perfect market is W. Jevons. Representatives of classical political economy, when characterizing market regulation, relied on the concept of free (unlimited) competition, emphasizing that the effect of competition is not subject to restrictions from pre-capitalist regulations that prevented the migration of capital from one industry to another.Pure (perfect) competition is competition that occurs in a market where a very large number of firms producing standard, homogeneous goods. Under these conditions, any firm can enter the market, there is no price control.
Perfect competition is called pure, meaning that it is "cleared" of any restrictions or monopoly tendencies. The concept of perfect competition, by definition, is tied to a static equilibrium model operating with predetermined prices and volumes of resources. The concept of free, unlimited competition characterized it as a process. The concept of perfect competition focused on the equilibrium state of the enterprise, industry as a result of previous competition. This interpretation meant the evolution of the theoretical model of the market.
In fact, perfect competition is quite rare, and only some of the markets come close to it (for example, the market for grain, securities, foreign currencies).
Examples of industries with pure (or perfect) competition are:
Agricultural production;
- small retail trade;
- sphere of household services;
- production of small volumes of design and construction products.
In a market of pure competition, no individual buyer or seller has much influence on the level of current market prices of goods. The seller cannot ask for a price higher than the market price, since buyers can freely purchase any quantity of goods they need at it. In this case, firstly, we have in mind the market for a certain product, such as wheat. Secondly, all sellers offer the same product on the market, i.e. the buyer will be equally satisfied with the wheat purchased from different sellers, and all buyers and sellers have the same and complete information about market conditions. Thirdly, the actions of an individual buyer or seller do not affect the market.
The mechanism of the functioning of such a market can be illustrated by next example. If the price of wheat rises as a result of increased demand, the farmer will respond by expanding his planting next year. For the same reason, other farmers will sow large areas as well as those who have never done it before. As a result, the supply of wheat on the market will increase, which may lead to a drop in the market price. If this happens, then all producers, and even those who did not expand the area under wheat, will experience problems with its sale at a lower price.
In the economic literature, the following factors are noted that impede the increase in the efficiency of production and distribution in a market of pure competition:
1) the market does not provide a relative balance of income and generates inequality in the distribution of the produced social product;
2) the market does not allow side costs for the production of public goods and the satisfaction of public needs;
3) a purely competitive market can interfere with the development and implementation new technology and technology due to the small size of competing firms and the greater benefit of using already developed technical improvements than their own innovations;
4) a purely competitive market provides neither a wide range of choice of products for consumption, nor conditions for the development of new products.
Thus, a market of pure competition (or perfect) is one in which the same price is set for the same product at the same time, for which:
1) an unlimited number of participants in economic relations and free competition between them;
2) absolutely free access to any economic activity all members of society;
3) absolute mobility of factors of production;
4) unlimited freedom of movement of capital;
5) absolute awareness of the market about the rate of return, demand, supply, etc. (implementation of the principle of rational behavior of market entities (optimization of individual well-being as a result of income growth) is impossible without complete information);
6) absolute homogeneity of goods of the same name (lack of trademarks etc.);
7) the existence of a situation where none of the participants in the competition is able to directly influence the decision of another by non-economic methods;
8) spontaneous price fixing in the course of free competition;
9) the absence of monopoly (presence of one producer), monopsony (presence of one buyer) and non-interference of the state in the functioning of the market.
A firm in a perfectly competitive market
The value of market analysis of perfect (pure) competition is that:There are industries whose structure is very close to this model;
- perfect competition can be considered as the simplest situation, which serves as a starting point for determining the price and volume of production in more complex models;
- With perfect competition, as with the standard, you can compare the efficiency of the real economy.
The objectives of studying the competitive market are:
Studying supply and demand from the point of view of a competitive seller;
- consideration of the adaptation of a competitive firm to the existing price in the short term;
- study of long-term changes in the industry;
- Evaluation of the effectiveness of a competitive industry from the point of view of society.
In a perfectly competitive market, the following conditions are true:
Many competing sellers sell standardized products to many buyers;
- each firm has less than 1% of total sales for any period;
Individual firms do not see competitors as a threat to their market share sales, and therefore are not interested production solutions each other;
- Information about prices, technology, profits is available. Firms have the ability to respond quickly to changing market conditions;
- there are no restrictions for entering and exiting the market.
In accordance with the above conditions, the share of an individual firm in the total supply is very small.
Therefore, any competitive firm cannot significantly influence the price. This parameter is set based on market demand and supply. The firm only adapts to the price dictated by the market. The market demand curve in this case is a typical demand curve with a negative slope. This means that in conditions of perfect competition, the volume of sales can be increased only by setting a lower price for the goods.
Perfect market conditions
In a market of perfect competition, the splitting of economic power is maximal and the mechanisms of competition operate in full force. Many manufacturers operate here, deprived of any leverage to impose their will on consumers.Conditions for perfect competition
Product homogeneity
In order for competition to be perfect, the goods offered by firms must meet the condition of product homogeneity. This means that the products of firms in the view of buyers are homogeneous and indistinguishable, that is, the products of different enterprises are completely interchangeable (they are complete substitute goods).
Under these conditions, no buyer would be willing to pay a hypothetical firm more than he would pay its competitors. After all, the goods are the same, customers do not care which company they buy from, and they, of course, opt for the cheapest. That is, the condition of product homogeneity actually means that the difference in prices is the only reason why the buyer can prefer one seller to another.
Small size and large number of market participants
Under perfect competition, neither sellers nor buyers influence the market situation due to the smallness and multiplicity of all market participants. Sometimes both of these sides of perfect competition are combined, speaking of the atomistic structure of the market. This means that there are a large number of small sellers and buyers operating in the market, just as any drop of water is made up of a gigantic number of tiny atoms.
At the same time, purchases made by the consumer (or sales by the seller) are so small compared to the total volume of the market that the decision to lower or increase their volumes creates neither surpluses nor deficits. The aggregate size of supply and demand simply "does not notice" such small changes. So, if one of the countless beer stalls in Moscow closes, the capital's beer market will not become one iota more scarce, just as there will not be a surplus of the drink beloved by the people if one more “point” appears in addition to the existing ones.
The inability to dictate the price to the market
These restrictions (homogeneity of products, large number and small size of enterprises) actually predetermine that, under perfect competition, market entities are not able to influence prices.
It is ridiculous to believe, say, that one seller of potatoes on the "collective-farm" market will be able to impose on buyers a higher price for his product, if other conditions of perfect competition are observed. Namely, if there are many sellers and their potatoes are exactly the same. Therefore, it is often said that under perfect competition, each individual firm-seller "takes the price", or is a price-taker.
Market entities under conditions of perfect competition can influence the general situation only when they act in agreement. That is, when some external conditions encourage all sellers (or all buyers) of the industry to make the same decisions. The Russians experienced this first hand when, in the first days after the devaluation of the ruble, all grocery stores, without agreeing, but equally understanding the situation, unanimously began to raise prices for goods of a “crisis” assortment - sugar, salt, flour, etc. Although the price increase was economically unjustified (these goods rose in price much more than the ruble depreciated), the sellers managed to impose their will on the market precisely as a result of the unity of their position.
And this is not a special case. The difference in the consequences of a change in supply (or demand) by one firm and the entire industry as a whole plays a large role in the functioning of the perfectly competitive market.
No Barriers
The next condition for perfect competition is the absence of barriers to entry and exit from the market. When there are such barriers, sellers (or buyers) begin to behave like a single corporation, even if there are many of them and they are all small firms. In history, this is exactly how the medieval guilds (shops) of merchants and artisans acted, when, according to the law, only a member of the guild (shop) could produce and sell goods in the city.
Nowadays, similar processes are taking place in criminalized areas of business, which - alas! - can be observed in many markets of large cities of Russia. All sellers follow well-known unofficial rules (in particular, they keep prices no lower than a certain level). Any outsider who decides to bring down prices, and simply trade "without permission", has to deal with bandits. And when, say, the Moscow government sends disguised police officers to the market to sell cheap fruit (the goal is to force the criminal "owners" of the market to show themselves and then arrest them), then it fights precisely for the removal of barriers to entering the market.
On the contrary, the absence of barriers typical of perfect competition or the freedom to enter the market (industry) and leave it means that resources are completely mobile and move without problems from one activity to another. Buyers freely change their preferences when choosing goods, and sellers easily switch production to more profitable products.
There are no difficulties with the termination of operations in the market. Conditions do not force anyone to stay in the industry if it does not suit their interests. In other words, the absence of barriers means the absolute flexibility and adaptability of a perfectly competitive market.
Perfect Information
The last condition for the existence of a perfectly competitive market is that information about prices, technology, and likely profits is freely available to everyone. Firms have the ability to quickly and rationally respond to changing market conditions by moving the resources used. There are no trade secrets, unpredictable developments, unexpected actions of competitors. That is, decisions are made by the firm in conditions of complete certainty regarding the market situation or, what is the same, in the presence of perfect information about the market.
A perfectly competitive market
Competition means rivalry between individual subjects of the market economy for the most favorable conditions for the production and sale of goods.The essence of competition is manifested in its following functions:
Regulatory - ensuring the focus of the manufacturer on the needs of society, since without this it is impossible to receive income (produce only what you can sell, and do not try to sell what you managed to produce);
innovative - stimulating the growth of production efficiency through the use of the achievements of scientific and technical progress;
allocation (location function) - the efficient distribution of resources between sectors of production in accordance with demand and the rate of return;
sanitizing - liquidation of uncompetitive enterprises;
stimulating - reducing prices and improving product quality.
There are the following types of competition:
Functional (competition of a certain product);
competition on price and quality;
intercompany (among individual firms, enterprises);
intra-industry and inter-industry;
perfect and imperfect.
The concept of "perfect competition" plays a special role in economic theory. This is because the study of a perfectly competitive market explains situations that do not meet the requirements of such a structure. The market of perfect (or, as they often say, pure) competition acts Starting point and benchmark for comparison with other market types and is therefore rated as an ideal market structure. This allows you to clearly identify the system of restrictions that each firm faces on the path to maximizing profits.
Perfect competition is “perfect” precisely in the sense that, given the organization of the market, each firm can sell at the market price as much product as it wants, and neither an individual seller nor an individual buyer can influence the price level.
The main characteristics of a perfectly competitive market are:
1. There are many firms on the market at the same time, each of which occupies an insignificant market share.
The “smallness” of economic agents means that the volumes of supply and demand are extremely insignificant relative to the scale of the market, and their change cannot affect the market price of products. The latter is determined only by a combination of sellers and buyers, i.e., supply and demand, and can be recognized as equilibrium. It is clear that the “multitude” of market entities also implies a huge number of them, which cannot lead to collusion between them in order to acquire monopoly advantages.
2. Product uniformity.
In the view of the buyer and the seller, all units of goods are exactly the same, completely identical, and the market is completely depersonalized. The buyer does not care which seller to purchase the goods from, because the product is the same. Therefore, the only incentive to attract a buyer from the seller is the price.
A perfectly competitive market is a price competition market.
The homogeneity of products, the multiplicity and smallness of independent economic entities in the market of perfect competition becomes the basis for the following important assumption.
3. Freedom to enter and exit the industry.
All economic subjects of this market have complete freedom to enter and exit the market, that is, they are free to start production, continue or stop it, if they themselves consider it expedient. The buyers have the same freedom in terms of volumes and the very fact of the purchase. There are no barriers (legislative or economic) to enter the industry, which makes this market extremely mobile, able to transfer resources.
4. There is equal access to information.
Buyers instantly and free of charge learn all the parameters of the market and therefore freely move from one seller to another at their own discretion.
Firms know exactly their income and costs, the prices of all resources and various technologies. Decisions are made only under conditions of certainty.
It is clear that these four characteristics are so strict that they can hardly be satisfied by the real market. Nevertheless, the study of the market of perfect competition is not useful, because the proposed model of perfect competition allows you to draw the right conclusions, even if it is based on unrealistic assumptions.
Monopoly: essence and consequences
In economic theory, a monopoly is a type of market in which there is only one seller of a certain product. This is the extreme opposite of perfect competition. Being sole supplier goods, the monopoly enterprise actually embodies the whole industry. This predetermines the difference between his behavior and the behavior of a perfect competitor.
The existence of a monopoly is associated with the presence of four basic conditions:
1. One seller is opposed by a large number of buyers. If there is a single buyer in a market with a single seller, then the market is called a “bilateral monopoly”.
2. Lack of perfect product substitutes. The monopolist is the sole producer of a unit unique products, which does not have any close substitute products, which forces buyers to purchase goods only from him.
3. Lack of freedom to enter the market.
A monopoly exists when it is unprofitable or impossible for other firms to enter the industry.
Entry barriers are many and varied:
The presence of patents, government licenses, quotas, high duties on the import of goods;
- control over the sources of raw materials and other specific resources;
- high transport costs, contributing to the formation of isolated local markets.
Monopoly can be justified in terms of the highest economic efficiency when economies of scale are so great that a single firm can supply the entire market at a lower cost than several openly competing firms. Industries in which this situation occurs are called "natural monopolies". Here barriers to entry are based on features of the technology that reflect the natural laws of nature rather than on property rights or government licenses. The favorable market conditions for a natural monopoly require them state regulation.
AT different countries solve the problem of regulation of natural monopolies in different ways. Thus, in the United States, natural monopolies remain private companies, but are regulated by special bodies. In Kazakhstan, most are managed directly by the state, while in France they receive a relatively independent status within the public sector of the economy.
4. Perfect awareness of market parameters.
Manipulating in order to maximize profits volume or price level, the monopolist must know all possible relationships between demand prices and its volumes.
So, a firm has monopoly power (power) if it can dictate to customers its preferred prices and production volumes. The extent to which an individual seller can exercise monopoly power depends on the availability of close substitutes for his product and on his market share. Therefore, in order to have monopoly power, it is not necessary to be a pure monopolist, but it is a pure monopoly that represents an extreme case of market power.
In conclusion, several conclusions can be drawn about market performance under monopoly versus competition:
1) the monopoly price is higher than the competitive one;
2) production volumes in the monopoly market are higher than in the competitive market;
3) the monopoly market uses available resources less efficiently;
4) the monopolist has monopoly power, which allows him to dictate prices and sales volumes.
Prices in a perfectly competitive market
The most important feature underlying the classification of market structures is the degree of influence of an individual producer (seller) on the formation of a market price. The structure of the market is determined by the number and size of firms, the nature of products, the ease of entry and exit from the market, and the availability of information.Perfect competition is such an economic situation when the production of a certain product is carried out by many small enterprises, each of which produces an insignificant share of the industry's output. This means that none of them is capable of influencing the price of goods in any significant way. On the other hand, there are many buyers in the market, and the decision of each of them cannot affect the market price either.
A market is considered to be perfectly competitive if the following conditions are met:
1) the market consists of many competing sellers, each of which sells a standardized homogeneous product to many buyers;
2) each firm has a very small share of total output sold on the market, less than 1% of sales in any given time period;
3) firms are not interested in the production solutions of their competitors, as they do not consider them as a threat to their market share of sales;
4) information about prices, technology and likely profits is freely available and it is possible to quickly respond to changing market conditions by moving the resources used;
5) entry into the market and exit from it for sellers is free, which means that there are no restrictions that prevent the company from selling goods on the market, and there are no difficulties with the termination of operations on the market.
The price in a perfectly competitive market is formed under the influence of market demand (which is formed by all consumers present on the market) and market supply (which is formed by all producers) - the equilibrium price.
In conditions of perfect competition, the firm is so small compared to the market as an integral system that its decisions have little effect on the market price. The equilibrium between supply and demand that has developed at a single price will not change if an individual firm increases (decreases) the amount of output.
Thus, individual producers are forced to adjust to the current market price, comparing it with their costs and choosing the optimal production volume.
When a firm incurs losses in the short run, it has two alternatives: produce on the basis of the general profit maximization condition for perfect competition of equal price to marginal cost, or cease production. Continuing to operate, the company incurs losses both on permanent and on variable costs Oh. In addition, she receives some income from the sale of her products. When does it stop production altogether? variable costs are reduced to zero, but the losses are due to fixed costs. The firm also forgoes the opportunity to earn income from the sale of its products. That is, in the short run, the firm will lose more from its closure than from continuing operations. If the price of a product falls below the minimum average variable cost, the firm must stop production.
In the long run, output at a loss is not possible, and some firms will be forced to leave the industry. If the market price of a given product provides a typical producer with a positive economic profit, then firms from other industries will begin to move into this industry, supply will increase, and the optimal output of an individual firm will decrease.
Thus, in a perfectly competitive industry, firms can earn positive economic profits only for a certain time; in the long run, no firm can earn more than a normal profit.
In modern conditions, perfect competition is a rather rare case, and only some of the markets come close to it (the market for grain, securities, foreign currencies).
Perfect labor market
A perfectly competitive labor market is a self-regulating system in which potential employees have the right to choose the labor sphere, competing among themselves for optimal working conditions.The characteristics of a perfectly competitive market are:
Free competition among employers - organizations without the formation of coalitions hire employees in a specific area of \u200b\u200bemployment;
competition between qualified workers - equally competent specialists compete with each other when looking for vacancies, offering their skills in a specific professional area;
free formation of wage rates - organizations and employees affect wages only indirectly.
The peculiarity of the employment market lies in the fact that absolute employment of the population cannot be achieved a priori. This means that competition has a permanent basis.
The perfectly competitive labor market is characterized by the following specific features:
The presence of an unlimited number of employers and employees (vacancies and labor force);
the presence of a consistently high mobility of the labor force, which is expressed by a free change of place or sector of employment;
homogeneity of work categories and jobs offered;
equal access of all labor market participants to the offered vacancies.
However, the labor market is a dynamic system influenced by cumulative factors that contribute to imbalances. Therefore, even in economically developed countries, perfect competition in the market for vacancies and labor does not occur in its pure form.
Perfect competition in the job and labor market is determined by the following factors:
Classification of workers (by gender and age, their number in each industry, etc.);
territorial and climatic location of the labor market;
general standard of living;
the dynamics of socio-economic development;
degree of integration innovative technologies;
the presence of dominant areas of employment;
qualification structure of the labor market.
Benefits of a perfectly competitive labor market
In the absence of any sign of perfect competition, a market is defined as a system characterized by imperfect competition, in the form of oligopolies, monopolies, or monopsony. In such systems, job offers are made by the employer (a group of employers), who dictates working conditions in the context of their own profit.
Therefore, states pursue a policy that allows them to approach the conditions of perfect competition.
The promise of such measures lies in the fact that:
The number of firms-employers is not limited. With an oligopoly, the employer is a small number of companies that are interdependent on the established wage rate. Accordingly, it is economically unprofitable for them to compete with each other, thereby limiting market offers in a particular area of employment;
The balance of supply and demand is maintained with unlimited mobility. In a monopsony, one employing company employs the majority of workers of a certain skill level. The same company sets the wage rate, and the workers are forced to agree, since there are no similar vacancies due to the monopsist;
Equilibrium of the wage rate and unrestricted market entry are maintained. In a monopoly, workers organize into trade unions, which limit the access of other market participants to specific type employment and influence the wage rate through strikes and other radical methods of influence.
Development of competition in the labor market
Competition in the employment market develops through the interaction of supply/demand mechanisms. Against the backdrop of competition, sellers of the labor market tend to increase supply, provided that wages rise. Competition among workers will increase with high wages offered, as the overall rate of demand will rise.
On the contrary, in conditions when wages in a particular area of employment are underestimated, there is an excess of supply with a decline in demand. Then competition rises among employers.
The presence of unemployment in the labor market means that the market has lost the signs of perfect competition and intervention is needed to regulate it.
Features of a perfectly competitive market
Perfect competition is such a state of the market, which is characterized by minimal interdependence of participants in transactions; the influence of each market participant on the overall situation is so small that it can be neglected. Perfect (pure) competition - a market where many firms sell standardized goods to a large number of buyers; market access is free; the individual seller has absolutely no control over the price of the goods he sells; there is no non-price competition.The market of perfect (pure) competition is characterized by the following features:
1. Plurality of participants in transactions. A large number of consumers and producers interact in the market; their rivalry gives strength to the mechanisms of competition. Due to their multiplicity, individually decisions taken agents do not affect (or slightly affect) the price level that regulates the market.
2. Homogeneity of goods. The goods that are the subject of transactions are produced in a similar way by different producers (for example, grain, cotton, etc.). In this case, a single price is set for the product, and the consumer does not care from whom to buy the product. When selling standard products, there is no non-price competition, because product quality and range are the same. There are no qualitative differences that could lead to market segmentation and disrupt competition through prices. Goods in such a market are non-specific, it is easy to find an equivalent replacement for them due to objective similarity, so consumers have no incentive to choose a seller and anonymity of agents arises.
3. Complete information. Entrepreneurs and consumers have complete information about the transactions in the industry, about the supply and demand, which can be discovered even before the transactions themselves begin. Consequently, the prevailing price objectively becomes one. Noteworthy is the position of J. Stigler, who connected the perfect market not with competition, but with the availability of complete information, noting the possibility of market competition dominating in the absence of input and output of resources (economic entities) to the market of an industry that is out of long-term competitive equilibrium.
4. Free access to the industry market. There is no discrimination related to entering or exiting the market; new producers are free to produce goods on the same terms as those already in the market. Thus, there are no barriers (legislative, technological, financial) for new firms to enter the market, customs duties, quotas or agreements between producers.
5. Mobility of factors of production. Factors of production can be transferred from one market to another.
6. The price of the goods does not include transport costs.
The listed signs of a competing firm in economic practice are not often formed, therefore, in its pure form, perfect competition is rare. It was more common at the initial stage of the development of market relations and was described in K. Marx's Capital as free competition. Currently, perfect competition is more of a theoretical model that characterizes the simplest situation in the market. The theoretical nature of the model of pure, or perfect, competition is due to the fact that in reality not all consumers respond equally to the price difference that exists in different markets. outlets. Obviously, behavioral stereotypes, ignorance of the prices of goods advertised by competitors, transportation costs, recognition of only one brand, etc., can distort the logic of choice.
For a long time, Western economic thought considered the market of perfect competition as the most beneficial situation for society, and the monopolies that emerged at that time were considered an exception. Currently, perfect competition exists in combination with other competitive structures.
In a situation of perfect competition, the price is set outside the firm - at the point of intersection of supply and demand in the market. An individual firm acts as a price taker and cannot exercise control over the price of products, since it does not affect the size of the total supply. The firm usually agrees with the market price, adapts to it. Therefore, in a perfectly competitive market, agreements between firms are excluded. The demand for the product of a pure competitor firm is perfectly elastic, so the line of demand for the product of a pure competitor will be horizontal.
The demand line for the firm's products will be both the average and marginal revenue lines. Under perfect competition, the firm sells at a price that does not depend on the quantity of goods produced. Product diversity is the only way for a firm to maximize its profits. If a firm increases its sales by one unit, its revenue will increase by the value in the market of the additional unit of output.
The cost of a perfectly competitive market
We have already defined that the market is a set of rules, using which buyers and sellers can interact with each other and carry out transactions (transactions). Over the history of the development of economic relations between people, markets are constantly undergoing transformations. For example, 20 years ago there was no such abundance electronic markets that are available to the consumer now. Consumers could not buy a book, household appliances, or shoes by simply opening an online store website and making a few clicks.At the time when Adam Smith began to talk about the nature of markets, they were arranged something like this: most of the goods consumed in European economies were produced by a multitude of manufactories and artisans who used mainly manual labor. The firm was very limited in size, and employed only a few dozen workers at the most, and most often 3-4 workers. At the same time, there were quite a lot of such manufactories and artisans, and they were producers of fairly homogeneous goods. That variety of brands and types of goods that we are used to in the modern consumer society did not exist then.
These signs led Smith to conclude that neither consumers nor producers have bargaining power, and the price is set freely by the interaction of thousands of buyers and sellers. Observing the features of the markets in the late 18th century, Smith came to the conclusion that buyers and sellers are guided towards equilibrium by an "invisible hand". The characteristics that were inherent in the markets at that time, Smith summarized in the term "perfect competition".
A perfectly competitive market is a market with many small buyers and sellers selling a homogeneous product under conditions where buyers and sellers have the same information about the product and each other. We have already discussed the main conclusion of Smith's "invisible hand" hypothesis - a perfectly competitive market is able to provide an efficient allocation of resources (when a product is sold at prices that exactly reflect the firm's marginal cost of producing it).
Once upon a time, most markets were really similar to perfect competition, but in the late 19th and early 20th centuries, when the world became industrial, and in a number of industrial sectors (coal mining, steel production, construction railways, banking) formed monopolies, it became clear that the model of perfect competition is no longer suitable for describing the real state of affairs.
Modern market structures are far from the characteristics of perfect competition, so perfect competition is currently ideal. economic model(like an ideal gas in physics), which is unattainable in reality due to the numerous forces of friction.
The ideal model of perfect competition has the following characteristics:
1. Many small and independent buyers and sellers who are unable to influence the market price;
2. Free entry and exit of firms, that is, the absence of barriers;
3. A homogeneous product is sold on the market that does not have qualitative differences;
4. Product information is open and equally available to all market participants.
Under these conditions, the market is able to allocate resources and goods efficiently. The criterion for the efficiency of a competitive market is the equality of prices and marginal costs.
Why does allocative efficiency arise when prices equal marginal cost and is lost when prices do not equal marginal cost? What is market efficiency and how is it achieved?
To answer this question, it suffices to consider a simple model. Consider potato production in an economy of 100 farmers whose marginal cost of potato production is an increasing function. The 1st kilo of potatoes costs $1, the 2nd kilo of potatoes costs $2, and so on. None of the farmers has such differences in production function, which would allow him to gain a competitive advantage over the rest. In other words, none of the farmers have bargaining power. All potatoes sold by farmers can be sold at the same price, determined in the market for balances of general demand and total supply. Consider two farmers: farmer Ivan produces 10 kilograms of potatoes per day at a marginal cost of $10, and farmer Michael produces 20 kilograms at a marginal cost of $20.
If the market price is $15 per kilogram, then Ivan has an incentive to increase potato production because each additional product and kilogram sold earns him an increase in profits, as long as his marginal cost does not exceed $15. For similar reasons, Mikhail has an incentive to reduction in production volumes.
Now let's imagine the following situation: Ivan, Mikhail, and other farmers initially produce 10 kilograms of potatoes, which they can sell for 15 rubles per kilogram. In this case, each of them has incentives to produce more potatoes, and the current situation will be attractive for the arrival of new farmers. Although each of the farmers has no influence on the market price, their joint efforts will lead to a fall in the market price to a level until the opportunities for additional profit for each and every one are exhausted.
Thus, thanks to the competition of many players in conditions of complete information and a homogeneous product, the consumer receives the product at the lowest possible price - at a price that only breaks the marginal cost of the producer, but does not exceed them.
Now let's see how equilibrium is established in the perfectly competitive market in graphical models.
The equilibrium market price is established in the market as a result of the interaction of supply and demand. The firm accepts this market price as given. The firm knows that at this price it will be able to sell as many goods as it likes, so there is no point in lowering the price.
Characteristics of a perfectly competitive market
The key concept that expresses the essence of market relations is the concept of competition (competition). Competition is a type of relationship between producers regarding the establishment of prices and volumes of supply of goods on the market. This is competition between manufacturers. Similarly, competition between consumers is defined as a relationship regarding the formation of prices and the volume of demand in the market. The stimulus that motivates a person to compete is the desire to surpass others. In the competition in the markets, it is about the conclusion of transactions and shares in the market sphere. Competition is a dynamic (accelerating) process. It serves to better supply the market with goods.In each market economy there is a risk that competitors will try to avoid the mandatory rules and risks associated with free competition, for example, by resorting to price fixing or trademark imitation.
Therefore, the state must issue regulations which regulate the rules of competition and guarantee:
The quality of the competition;
- the very existence of competition;
- prices and quality of products should be the focus of competition;
- the service offered must be commensurate in price and other contractual terms;
- protected legal regulations trademarks and brands help the buyer to distinguish goods by their origin and originality, as well as to judge some of their qualities;
- time-limited patent protection (20 years) and registered industrial designs, as well as designs of industrial aesthetics.
There are two forms of competition:
1. Perfect competition.
2. Imperfect competition.
The main provisions characterizing perfect competition.
Perfect competition is characterized by a large number of sellers and buyers of the same product. Changes in the price of any seller cause a corresponding reaction only among buyers, but not among other sellers.
The market is open to everyone. Advertising companies not so important and obligatory, because only homogeneous (homogeneous) goods are offered for sale, the market is transparent and there are no preferences. In a market with such a structure, price is a given value. Based on the foregoing, the following options for the behavior of market participants can be deduced.
Price acceptor. Although the price is formed in the process of competition among all market participants, but at the same time, a single seller does not have any direct influence on the price. If a seller asks for a higher price, all buyers immediately go to his competitors, because in a perfectly competitive situation, each seller and buyer has complete and correct information about the price, quantities of the product, costs and demand in the market.
If the seller asks for more low price, then he will not be able to satisfy all the demand that will be focused on him, due to his insignificant market share, while there is no direct influence on the price from this particular seller.
If buyers and sellers act in the same way, they influence the price.
Quantity regulator. If the seller is forced to accept prevailing market prices, he can adjust to the market by adjusting the volume of his sales. In this case, he determines the quantity he intends to sell at a given price. The buyer also has only to choose how much he wants to receive at a given price.
The conditions for perfect competition are determined by the following premises:
A large number of sellers and buyers, none of which has a noticeable influence on the market price and quantity of goods;
- each seller produces a homogeneous product that is in no way different from the product of other sellers;
- Barriers to entry into the market in the long term are either minimal or non-existent;
- there are no artificial restrictions on demand, supply or price, and resources - variable factors of production - are mobile;
- each seller and buyer has complete and correct information about the price, quantities of the product, costs and demand in the market.
It is easy to see that no real market satisfies all the above conditions. Therefore, the scheme of perfect competition is mainly of theoretical importance. However, it is the key to understanding more realistic market structures. And therein lies its value.
For market participants in conditions of perfect competition, the price is a given value. Therefore, the seller can only decide how much he wants to offer at a given price. This means that he is both a price acceptor and a quantity regulator.
Characteristics of perfect competition
Ways to compete. Competition in Latin means "to collide" and, as noted above, means the struggle between producers for the most favorable conditions for the production and marketing of products. Competition plays the role of a regulator of the pace and volume of production, while prompting the manufacturer to introduce scientific and technological achievements, increase labor productivity, improve technology, work organization, etc.
Competition is a determining factor in ordering prices, an incentive innovation processes(introduction into production of innovations: new ideas, inventions). It contributes to the displacement of inefficient enterprises from production, the rational use of resources, and prevents the dictate of producers (monopolists) in relation to consumption.
Competition can be conditionally divided into fair and unfair competition.
The main methods of fair competition are:
Improving the quality of products;
- price reduction ("price war");
- advertising;
- development before and after sales service;
- creation of new goods and services using the achievements of scientific and technological revolution, etc.
One of the traditional forms of competition is price manipulation, the so-called. price war. It is carried out in many ways: lowering prices, local price changes, seasonal provision of a larger volume of services at current prices, lengthening the terms of consumer credit, etc. Basically, price competition is used to push weaker competitors out of the market or to penetrate an already developed market.
A more effective and more modern form of competition is the struggle for the quality of the goods offered to the market. The entry into the market of higher quality products or new use value makes it more difficult for a competitor to respond. The "formation" of quality goes through a long cycle, starting with the accumulation of economic, scientific and technical information. As an example, we can cite the fact that the well-known Japanese company SONY carried out the development of a video recorder simultaneously in 10 competing areas.
At present, various kinds of marketing research, the purpose of which is to study the needs of the consumer, his attitude to certain goods, tk. knowledge of this kind of information by the manufacturer allows him to more accurately represent future buyers of his products, more accurately represent and predict the situation on the market as a result of his actions, reduce the risk of failure, etc.
The pre-sales and after-sales service of the buyer plays an important role. the constant presence of manufacturers in the consumer service sector is necessary. Pre-sales service includes meeting the requirements of consumers in terms of supply: reduction, regularity, rhythm of deliveries (for example, components and assemblies). After-sales service - creation of various service centers maintenance of purchased products, including the provision of spare parts, repairs, etc.
The main methods of unfair competition are:
Economic (industrial espionage);
- counterfeit products of competitors;
- bribery and blackmail;
- fraud of consumers;
- fraud with business reporting;
- currency fraud;
- concealment of defects, etc.
Perfect competition labor market
This market is ideal model” and is based on a number of assumptions that are rather unrealistic.Characteristics of a competitive labor market:
1. A significant number of buyers (firms) and sellers (households) Each firm contributes a small share of the total demand for labor, each household contributes a small share of the supply of labor, and as a result, none of the market participants can influence the market price. All market participants are price takers.
2. Labor is homogeneous. This means that workers have the same skills, productivity and the same human capital.
3. There are no entry/exit barriers.
4. Information is completely and symmetrically distributed among market participants.
Under these conditions, the equilibrium wage rate is determined by the intersection of supply and demand curves in the labor market, and the individual firm perceives it as given. Any firm present in a given market finds that an infinite number of workers want to be hired at the equilibrium wage.
Perfect competition in the labor market implies the presence of four main features:
1) the presentation of demand for a certain type of labor (i.e., for workers of a specific qualification and profession) by a sufficiently large number of firms competing with each other;
2) the offer of their labor by all employees of the same qualification and profession (i.e., members of a certain non-competing group) independently of each other;
3) the absence of any one association on the part of both buyers of labor services (monopsony) and their sellers (monopoly);
4) the objective impossibility of agents of demand (firms) and agents of supply (employees) to establish control over the market price of labor, i.e., to dictate the level of wages forcibly.
Perfect competition market model
There are four main market models: perfect (pure) competition, pure monopoly, oligopoly, monopolistic competition. The criteria for their difference: the number of sellers, the nature of the products offered, the ability to control prices, the conditions for entering the industry (entering the market) and exiting it, the method of competition.Signs of a market of perfect competition, which describe its economic essence:
1. A very large number of sellers and buyers.
2. Standardized products - all firms offer a similar product, i.e. perfect substitute. The consumer does not distinguish the goods of one seller from the goods of another seller, even if they have differences.
3. An individual seller cannot control the market price of a product because its market share is insignificant. As a result, there are no grounds for price competition, since each firm adjusts to the existing price set by the market. There are no agreements between sellers to control prices; the individual buyer also cannot influence the price of the product.
4. Free entry into the industry and exit from the industry - there are no technological, financial, legislative, informational barriers that can prevent a change in the number of firms in the market. All factors of production are available to each producer. It is on this sign of the market of perfect competition that the mechanism for adapting the industry to the market situation in the long run is based.
5. Lack of grounds for non-price competition, which manifests itself in differences in quality, advertising, and sales of goods.
The individual demand for the product of an individual firm in a perfectly competitive market is graphically characterized by a horizontal line (perfect elasticity). The market demand curve shows how much of a product all consumers will buy at each possible price, it has the usual downward trend. The price in the market of perfect competition is determined by the ratio of supply and demand in the entire industry in accordance with market laws. The inability to control prices and sales volumes creates conditions for their constant fluctuations under the influence of changes in market conditions. Examples of such markets are the securities market, the market for agricultural products in developed countries.
Economic science until the beginning of the twentieth century. was built on the prerequisites of perfect competition, the conditions of which were considered the most beneficial for society. However, this situation is rare and represents an “ideal” structure that one can only aspire to. In real life, there is imperfect competition - a situation in which sellers have more freedom in determining prices. By maintaining a higher price than under perfect competition, firms earn more profit at the expense of buyers. In imperfect competition, many economists see the main weakness of the market economic system.
Finding out the general features of a perfectly competitive market and the features of the functioning of the company on it allows us to develop a model for choosing the optimal volume of production that maximizes profits. This model has its own specifics for the short and long term.
perfect monopoly market
The market of a perfect monopoly is characterized by the presence of insurmountable barriers to entry, among which are:- the monopolist has patents for products and technologies used;
– the existence of government licenses, quotas or high duties on the import of goods;
- monopolist control of strategic sources of raw materials or other limited resources;
– significant economies of scale in production;
– high transportation costs, contributing to the formation of isolated local markets (local monopolies);
- carrying out by the monopolist of the policy of preventing new sellers from entering the market.
One seller is opposed by a large number of buyers. A perfect monopolist has bargaining power, manifested in the fact that he dictates his terms to many independent buyers, while extracting the maximum profit for himself.
Perfect awareness. The monopolist has complete information about the market for its products.
Depending on the types of barriers that prevent new firms from entering the monopoly market, it is customary to distinguish the following types of monopoly:
1) administrative monopolies due to the existence of significant administrative barriers to entry into the market (for example, state licensing);
2) economic monopolies caused by the monopolist's policy of preventing new sellers from entering the market (for example, predatory pricing, control over strategic resources);
3) natural monopolies, due to the existence of significant economies of scale in relation to the size of the market.
The monopoly structure of the market in conditions of profit maximization by the monopolist leads to limited production volumes and overpricing, which is seen as a loss of social welfare. At the same time, the functioning of a monopoly, as a rule, is associated with the existence of the so-called inefficiency, which manifests itself in the excess of real costs for the production of products at the level of minimum costs.
The reasons for such inefficiency of monopoly production can be, on the one hand, irrational management methods caused by the lack or weakness of incentives to improve production efficiency, on the other hand, incomplete extraction of economies of scale in production due to incomplete utilization of production capacities, due to limited production volumes while maximizing profits.
The existence of a monopoly in some cases has its fairly significant advantages. Monopoly has additional own funds, which the monopoly can use for the development of innovation and investment activities, which could not be available under a different market structure.
In the case of significant economies of scale relative to the size of the market, the existence of one large enterprise economically more justified than the existence of several smaller ones, since one enterprise will be able to produce products at much lower costs than several. A monopoly enterprise is characterized by a more stable position in the market than in any other market structure, while the scale of activity increases its investment attractiveness, which makes it possible to attract the financial resources required for development at a lower cost.
Functions of a perfectly competitive market
The first and one of the main functions of the market is pricing. The mechanism of establishing market prices is a unique way of communication, dissemination of information and other important information necessary for a person in the economic world. All this information and information is embodied in prices. Operational, extensive and at the same time contained in prices, allows you to determine the fullness or scarcity of markets for each type of product, the level of costs for their production, technologies and directions for their improvement.Competition is another function of the market. Like pricing, competition is a cumulative, complex function. Most often it is identified with the struggle of "furies of private interest." And this is not without reason, if we keep in mind that this formula embodies the motivation of the economic behavior of people in a market economy. However, this is still not a complete description of competition. The market and competition are in a certain sense synonymous: one does not exist without the other. In any case, only market competition can be, according to the classical definition, the process of opening up new opportunities that, without recourse to it, would remain unused in the economy. The market process points individuals in the direction of the search, although it makes no guarantees about its results. This is one of the reasons why people sometimes object to the market and competition. However, only this process allows the discovery of new and cheaper goods, as well as methods for their production.
Market features include:
Informational - the market provides its participants with information about required quantity goods and services, their range and quality;
- intermediary - the market acts as an intermediary between the producer and the consumer;
- pricing - the price is formed in the market on the basis of the interaction of supply and demand, taking into account competition;
- regulating - the market balances supply and demand;
- coordinating - the market encourages producers to create the economic benefits that society needs at the lowest cost and receive sufficient profit.
Competition is the competition of economic entities, when their independent actions effectively limit the ability of each of them to unilaterally influence the general conditions for the circulation of goods in the relevant commodity market (Law on Competition on commodity markets).
Accordingly, market competition financial services- competitiveness between financial institutions, in which their independent actions effectively limit the ability of each of them to unilaterally influence the general conditions for the provision of financial services in the financial services market (Law on Competition on financial markets).
This definition of competition assumes that market participants are only business entities (enterprises, organizations); competition is inherent only in a perfect market. Neither one nor the other is justified, since the market of consumer goods (services) plays the most important role in competition, where various social groups of the population, the most intense competition actually takes place in conditions of a fairly “broad” oligopoly. The concept of market competition. In the context of the desire of each firm to maximize profits and, consequently, to expand the scale of economic activity, firms act in relation to each other as competitors. Obviously, the emergence of such a phenomenon as competition became possible only on the basis of a certain set of psychological and ethical features of human behavior. For example, if we assume that the main dominants of human behavior would be passivity, resignation to fate and a readiness to limit oneself in life to the very minimum of all blessings (ascetic abstinence), then it is unlikely that competitive fights would arise in such a human society. However, the emergence of competition has both socio-psychological and economic reasons. In addition, competition is largely associated with limited resources, which give rise to competition for the right to use them to quickly achieve the highest level of one's own well-being. Based on this, the concept of competition can be revealed.
Competition is an economic competition between citizens, firms and countries, aimed at getting into one's favor the largest number(or the best) of limited resources and maximize their use.
As a rule, competition plays a positive role in the economic life of society, encouraging citizens, firms and countries to look for the most rational ways to obtain and use scarce resources of all kinds. However, competition can also take forms that cannot be classified as productive. Sometimes these forms are negative and also destructive. If the distribution of limited resources is not carried out by the market, then this entails a number of consequences that are well known in our country: queues, privileges, blat, bribery (as a way to get around competitors by bribing officials) and other criminal methods of distribution that replace market competition for limited resources. Competition in these forms distributes resources inefficiently, leads to the destruction of the economy, nature, morality, and, ultimately, to the destruction of the human personality and society. Market competition, that is, the presence of a large number of independent sellers and buyers who have the freedom to enter or leave the market, limits the destructive and preserves the creative power of self-interest, personal gain. Thus, competition acts as the main regulatory system in a market economy. The higher the competition, the better for the consumers of the country's citizens.
Competitiveness relations in a planned economy are characterized by two main features. First, since the state is the main subject distributing limited resources here, it becomes a direct participant in the competition for them. Enterprises competing with each other through interaction with government bodies economic management. In the management bodies of material and technical supply, enterprises are fighting for attachment to reliable suppliers of raw materials, for high funds and limits for the supply of raw materials, materials and equipment.
In the price-forming bodies they are fighting to raise the prices of their products and lower the prices of the means of production they consume.
Secondly, since one of the main features is a total shortage of goods and services, competition in the sphere of commodity circulation appears here in the form of rivalry between buyers. It is not the sellers of goods and services that fight for the buyer, but the buyers that fight each other for possession of the goods.
The forms of this struggle are diverse, from traditional standing in lines to illegal actions in order to win the favor of the manufacturer (or seller) of goods.
Sign of a perfect market
Features of a perfectly competitive market:1) Many buyers and sellers.
2) Free entry to the market for producers and free flow of capital from and into the industry.
3) Manufactured products are homogeneous (homogeneous are products that can be measured in kilograms, tons, liters, cubic meters).
4) Free prices, formed under the influence of supply and demand.
An ideal market is a competitive, perfect and free market that has:
Unlimited number of market participants;
free market entry and exit;
free prices;
a significant number of sellers and buyers;
lack of pressure and coercion on the part of the participants in relation to each other;
homogeneity of similar products presented on the market.
The ideal market model is perfect competition
Perfect competition is a type of market in which many sellers offer buyers same product, while having free entry into the industry, enjoy general information about the price.
There must be a significant number of sellers and buyers of this product on the market, who, under this condition, alone will not be able to influence the market equilibrium. None of them will have the corresponding authority. All subjects are fully subordinate to the market element.
Sold standard and identical products. An example of such a commodity is flour of one class, cereals, sugar, etc. Subject to such conditions, buyers will not give preference to the products of a particular company, since the quality will be the same everywhere.
One seller with an ideal market model cannot influence the market price, because there are a sufficiently large number of firms that produce the same product. Under perfect competition, each seller will be forced to accept the price dictated by the market.
In an ideal market, there is no competition, since the quality of the goods is absolutely homogeneous.
Consumers have access to price information. If a manufacturer decides to single-handedly increase the cost of its products, then it will simply lose its customers.
Sellers do not have the opportunity to agree and raise the price, because there are a lot of them in this market. The ideal market model assumes that absolutely every seller has the opportunity to both enter a certain market sector and exit it at any time, since there are no obstacles. The new firm without problems both is created and closed.
Perfect competition is a model of an ideal market, in which individual sellers cannot influence the market price by changing the volume of production, because, against the general background of the market, their share is almost equal to zero. If the seller decides to reduce his production and sales volumes, then this will change the total market supply negligibly.
The seller is forced to sell his products at the already established cost, which is the same for the entire market. Demand changes for his product quite elastically: if the seller sets the price for the product above the market price, then the demand will fall to zero. If the cost is set below the market, then demand will grow indefinitely.
Perfect competition is an ideal market model that is based on a theory that does not exist in real life. Different manufacturers have their own products, and barriers to entry and exit from the industry clearly exist. Perfect competition is approximated in some agricultural markets among small market sellers, retail stalls, as well as construction teams, photographic studios, etc. All of them are united by the approximate similarity of the offer, a large number of competitors, the negligible small scale of the business, the need to work at the current cost - i.e. many of the above conditions for a perfect market are present. Using their example, one can study the organization, functioning and logic of the work of small firms using a simplified and generalized analysis. In Russia, very often there are situations in small business that are close to perfect competition.
The concept of an ideal (perfect) capital market
Quite often, theories of finance are based on the concept of the so-called ideal or perfect capital market.
The ideal market is one in which there are no difficulties, so that the exchange of money and securities can be carried out easily and without any cost.
An ideal market has the following characteristics:
There are no transaction costs (associated with finding a partner, making a deal);
no taxes;
the presence of a large number of sellers and buyers, none of which affects the prices circulating on the securities market;
access to the market for individuals and legal entities is equal;
lack of information costs (equitable access to information);
all acting market participants have the same expectations;
no costs associated with financial difficulties.
capital market
Labor market - it is a market in which, as a result of the interaction of supply and demand, the prices of labor in the form of wages are formed.
Perfect competition in the labor market assumes the presence of three main features:
1) presentation of demand for a certain type of labor by a sufficiently large number of firms competing with each other;
2) the absence of any one association on the part of both buyers of labor services (monopsony) and their sellers (monopoly);
3) the objective impossibility of demand agents (firms) and supply agents (employees) to establish control over the market price of labor, i.e. forced to dictate the level of wages.
Let us consider the dynamics of demand and supply of labor in the market of perfect competition in relation to the industry (Fig. 1).
Figure 1. The labor market under perfect competition
On fig. Figure 1 shows the intersection of differently directed supply and demand curves at the equilibrium point, where the equilibrium wage rate (Wo) and the equilibrium number of employed workers (Lo) are formed. Under conditions of perfect competition, the action of the classical laws of self-regulation of the market is directly manifested.
At the equilibrium point, there is equally no surplus and shortage of labor (demand is exactly is equal to the offer). And this means that there is no unemployment in the economy, with its negative social consequences. There is also no shortage of workers, which leads to a decrease in labor motivation, a decrease in the exactingness of company management towards personnel, etc.
The equilibrium is stable: feedback extinguish random deviations from it. Let's say an increase in the price of labor (on the graph to the level W 1) leads to an increase in supply (up to the value L S) and a reduction in the demand for labor (up to the value L D). There is an excess supply of labor (L S > L D). Some of those who want to go to work do not find a place for themselves, competition for vacancies begins, during which workers agree to reduced wages, just to be hired. Gradually, the price of labor is reduced to its original level.
We emphasize that all this is achieved without any external (for example, state) interventions - each company hires exactly as many workers as necessary to maximize profits and therefore is not interested in violating it.
In real practice of management in the labor market, strict observance of all the principles of free competition is rarely observed. With a certain degree of conventionality, today they include the markets of sellers, builders, drivers, cleaners, repair workers of various profiles, specializing in the repair of housing, offices, household appliances, furniture and footwear, and auxiliary workers. The demand here is represented by a multitude of small and tiny firms, and the supply is represented by an unorganized mass of workers who master these relatively simple professions. And yet for modern market labor is characterized by imperfect competition.
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