1. Why might an industry which at first glance seems to be purely competitive or monopolistically competitive because of its large number of firms atsecond glance turn out to be monopolistic or oligopolistic?
For a better understanding on the appearance that an industry may take, one must first of all have a clear understanding on the terms that are attached to it, changing its status.
In this respect, it should be stated that an industry that seems to be monopolistically competitive refers to a market where many companies are selling differentiated products. This differentiation my come up from the features of the services and products offered, from the location of the goods sold and from the perception or the intangible aspects of those products.
The demand curve that is perceived in case of a monopolistically competitive company is downward-sloping; therefore it shows the properties of a price maker, able to determine the price/ quantity of product. Nonetheless, a monopolistically competitive company’s demand curve is considered to be more elastic than that of a monopolist, due to the fact that unlike the monopolist, it has direct competition.
A monopolistically competitive industry will be producing lower quantities of products for higher costs, charging higher prices than perfectly competitive firms, offering benefits to their clients in the shape of a greater variety of incentives for products and services that are being improved. (Taylor et al., 2013)
On the other hand, an oligopolistic industry is that in which just a few companies sell most of the products/services in the market. They may earn their highest profits in the case when they band together like a cartel, acting like a monopolistic industry, by raising price while reducing output. In this particular case, every player in the oligopoly is individually benefiting from the collusion with all the other. (Taylor et al., 2013)
Given all of the above information, we may observe that the element that may induce one into mistaken a monopolistic competition for oligopoly is the fact they may take the same form in appearance at some point in time resulting in a difficulty of delimitating one from another.
2. Employ ample empirical and theoretical evidence to explain why Adam Smith and Karl Marx are NOT economic bedfellows.
In order to better understand the differences between the theories of the two authors, we must first of all instate them. (Infoplease.com, 2003)
Adam Smith is a philosopher considered to be the founder of the modern economy. His attentive examination of the business affairs has led him to conclude that all the individuals in the society, each acting in their own self-interest, are managing to purchase and produce the products and the services that they need in order to function. Adam Smith has called his theory „ the invisible hand”. Even if Smith was not able to prove the existence of this mechanism, he gave many examples of how it works in the society, as a free market economy in action. (Infoplease.com, 2003)
Altogether with his discovery, Adam Smith has managed to found classical economics. The classical economics concept is related to the fact that the government’s laissez-faire attitude would allow the so-called „ invisible hand” to create the greater good for the majority of people, while guiding their economic endeavors and generating economic growth.
Karl Marx, on the other hand, was a German political scientist and economist. In his theories, he stated that the profits of the capitalist come from exploiting labor, reason for which he couldn’t respect the profit-oriented organization notion. Moreover, he has foreseen the fall of capitalism and the drive of the society towards communism, in which the workers own the means of production, not needing to exploit labor for making profit.
According to Schieffer and Lessem, Adam Smith and Karl Marx are rather enemies than friends, because capitalism and communism cannot stand together. It is obvious that they have completely different opinions, and where Adam saw growth and harmony, Karl has interpreted struggle, instability and decline. (Schieffer & Lessem, 2014)3. Compare and contrast a command economy with a free-market mixed economy, delineating the ideology, tenets and economic concepts undergirding each system.
The founder of the command economy ideology was the political scientist and economist, Karl Marx. He has sustained the idea that as long as there is a business owning class in the society, the oppression wouldn’t stop.
Some of the traits of a command economy are represented by facts, such as the illegality of the private property, the government being in control of the entire economy. Also, all individuals in the society will be considered as equals, no matter what job they are doing is another one of the command economy’s traits. Moreover, the government would be in control of the supply and demand for products and services.
For better understanding of what command economy is, there are several real-fact examples. There is the case of the former USSR, where their government has taken the land from the property owners, redistributing it to the workers. Another example is from Cuba, where people go to governmental food supply centers to be given rations of food, instead of purchasing it from the market at will.
The free-market mixed economies are situated somewhere between the market and the command economies. In this case the government usually owns the major industries, but individuals are allowed to own small businesses too. Free-market mixed economies are inclined to tax their inhabitants less than command economies, but more than market economies. One good trait of the free-market economy is that the consumers have mostly a wide variety of choices, of products or services from which to choose, and acquisition is not rationed like in the command economy.
A good example of a free-market economy is given by U.K. for instance, where university is cheap, health care is free, but its inhabitants are allowed to purchase health insurance that is private or may attend universities that are private if that is their choice.
Taylor, T., Greenlaw, S., Dodge, E., Gamez, C., Jauregui, A., & Keenan, D. et al. (2013). Principles of Economics (pp. 207-224). Openstax College.
Schieffer, A., & Lessem, R. (2014). Integral development : realising the transformative potential of individuals, organisations and societies (p. 433). UK: Gower.
Infoplease.com,. (2003). Overview of Economics: Three Economists and Their Theories. Retrieved 19 April 2015, from http://www.infoplease.com/cig/economics/three-economists-their-theories.html