Why are economic profits zero in the long run in a monopolistically competitive market?
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Economic profit refers to the difference between the overall income and the combined expenditure. The amount of expenses may be viewed from the business perspective of opportunity cost. In a monopolistically competitive business environment, such profits are usually zero, meaning that the total income equals the sum of expenditures (Hicks, 2014). To illustrate this claim, one may consider two Sectors X and Y whereby companies in Sector X are recording economic returns higher compared to those in Sector Y. Businesses in the latter sector may be viewed as realizing losses. Because of the uninterrupted exit-entry nature of companies in a monopolistically competitive environment, those operating in Sector Y will opt to join their counterparts in Sector X hoping to earn some profits. As a result, the supply-demand curve in this industry changes to the left in a manner that prices and returns go up while the opposite is realized in Sector X following the entry of many businesses. The persistent leaving and exiting of businesses with the view of securing favorable conditions results in zero economic returns in the end.
What are the unique characteristics of the four primary market structures?
Market structures are divided into four classes, namely, monopolistic competition, oligopoly, perfect competition, and monopoly. Companies that operate in a monopolistic competitive structure record huge numbers of customers and sellers. In addition, they witness minimal barriers when joining this structure. Demand in this market structure goes down when the cost of goods increases. Monopolies enjoy prices that are higher compared to marginal expenses. Hence, the possibility of changing their profit distribution is high. Companies that adopt a perfect competitive structure serve as reference points when evaluating market viability (Hicks, 2014). However, contrary to what is observed under monopolies, chances of changing profit distribution are low, despite the huge number of buyers and manufacturers. Businesses here enjoy smooth entry and exit options, including negligible financial expenses and long-run average costs. For companies operating in monopolies and perfect competitive environments, price stands out as the biggest variable for customers. Oligopolies are analogous to monopolies, although minimal businesses dictate this structure. The number of customers here significantly exceeds that of manufacturers.
What are the characteristics of a public good?
Public goods denote all services provided by a country to enhance the lives of its people. Although the private sector also contributes to offering services to the society, public goods possess two principal aspects that differentiate them from those availed by non-governmental agencies. Firstly, they are non-rivaled because the utilization of government services by some individuals does not alter their (services) accessibility by other potential users (Hicks, 2014). For instance, transport systems such as roads or streetlights may be viewed as public goods that serve all people, regardless of their rate of use. Hence, such goods never cease to be available after being consumed by citizens at similar or different times. Secondly, public goods are non-excludable. In this case, they are available to all citizens, regardless of whether one has paid for them or not. In fact, it is impractical to exclude citizens from utilizing public goods even if they fail to cater for the cost of using them.
What are the two ways that product differentiation affects the demand for a product?
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Product differentiation refers to a promotion concept that seeks to display striking differences between commodities with the aim of influencing clients’ purchasing possibilities (Hicks, 2014). Such a strategy affects the demand for items available in the market. Firstly, it makes customers go for items that appear more attractive, for instance, because of their unique packaging among other aspects that prove to them that such products have the potential of meeting their demands in relation to what rival businesses are offering. Secondly, product differentiation enhances brand allegiance that, in turn, increases the demand for particular merchandise. Hence, when commodities from a specific make are viewed as superior to what competitor companies are providing, chances are high that many customers will be interested in acquiring such items because of the brand image created, regardless of whether their perceptions are evidence-based or tentative. Currently, companies that are recording huge returns have invested significantly in creating a brand that many customers want be associated with. As a result, clients flood such organizations seeking various commodities that bear their preferred companies’ trademarks.
What are five different forms of government intervention in the economy?
In a free-market economic environment, the society is usually subjected to inequitable revenue, capital, and opportunity distribution (Hicks, 2014). Classified charity is also allocated asymmetrically. Hence, governments intervene with the view of ensuring impartial resource allotment. Firstly, they may get involved through the direct provision of public services such as education or transport infrastructure at no cost. This intervention ensures that all people, whether poor or rich, benefit from such services. Secondly, governments offer public services at subsidized rates to ensure that citizens have access to all basic goods, including those that are usually charged premium prices in the private sector. Thirdly, countries may intervene by regulating goods and services offered to the public. In this case, the private sector is given the room to take part in service provision, although customers are required by law to provide a merit service, for instance, by paying for car insurance services. Fourthly, governments may get involved through information campaigns. Such interventions seek to address the issue of over-utilization of public goods that have negative externalities. Fifthly, governmental contribution may be realized through macroeconomic policies. Here, the goal is to not only surmount protracted downturns but also reduce joblessness levels.
How do these economic concepts influence the structure of the American health care system?
The above economic concepts are currently influencing the structure of the American health care system. For instance, the U.S. medical provision structure has witnessed changes in the demand and supply of medical services. The government’s involvement in subsidizing healthcare rates through policies such as the Affordable Care Act has increased the demand and, consequently, the uptake of such services (Bisco, Cole, & Karl, 2017). Conversely, the private healthcare sector is currently recording a decrement in the number of people consuming its services because of the observed shift in demand.
The non-excludable nature of public goods has informed the American government’s involvement in providing financial backup with the view of ensuring that people without insurance covers can afford medical care. According to Hicks (2014), healthcare organizations in America do not embrace the structure of monopolies or perfect competition because the number of users and service providers is almost the same. Hence, the system is presently operating under the monopolistic competition structure. Regarding policy decision-making, the current state of the United States’ economy calls for a transformation that may be targeted at shifting the cost curve to enhance the quality and accessibility of services offered. In addition, the need to synchronize care delivery has informed the policy decision of establishing the electronic health record framework. Nonetheless, contrary to what is witnessed in other public goods, service providers are presently influencing the overall demand for healthcare in America.
Bisco, J., Cole, C., & Karl, B. (2017). The effect of government-run healthcare on the salaries of nursing professionals in the U.S. Journal of Insurance Issues, 40(2), 215-246.
Hicks, L. (2014). Economics of health and medical care (6th ed.). Burlington, MA: Jones & Bartlett Learning.