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  • Edward Cherlin
    Well, here we are, the first six of us. To get our Investigation started, I would like to ask you all to look at two articles on Wikipedia: Perfect
    Message 1 of 4 , Mar 8 1:31 AM
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      Well, here we are, the first six of us. To get our Investigation
      started, I would like to ask you all to look at two articles on
      Wikipedia: "Perfect Competition", and "Fundamental theorems of welfare
      economics" (which I am in process of editing).

      Exercises:

      1. Why are we reading this?
      2. How does this relate to the stated objective of eliminating poverty?
      3. Is there actually a correlation between economic growth and
      reduction of poverty, as goals, with closer approximation to the
      conditions of Perfect Competition? Start with the case of the
      Netherlands after throwing off Spanish rule.
      4. Are there any markets where perfect competition comes close to
      prevailing? With what results?
      5. What effects would universal access to the Internet have on
      competition? On economies?
      6. Suggestions, please, on these economic questions, and on how or
      what to investigate.

      Please share your thoughts on these questions with the group. Then we
      can discuss.

      After this, we will look at my collection of global Best Practices for
      dealing with poverty, and then get to business: What are the most
      effective actions we can take to deal with global poverty?

      Yahoo allows us to share documents, links, photos, a calendar, and
      other features. I have started to populate them, and welcome your
      additions.

      --
      Edward Cherlin
      http://www.linkedin.com/profile?viewProfile=&key=82712
      Earth Treasury End Poverty at a Profit
      http://wiki.laptop.org/go/Earth_Treasury
      WIRE AFRICA http//www.wireafrica.org/
    • gbengasmatch2
      Basic assumptions required for conditions of pure competition to exist Many small firms, each of whom produces an insignificant percentage of total market
      Message 2 of 4 , Mar 8 11:29 PM
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        Basic assumptions required for conditions of pure competition to exist

        Many small firms, each of whom produces an insignificant percentage
        of total market output and thus exercises no control over the ruling
        market price.
        Many individual buyers, none of whom has any control over the market
        price – i.e. there is no monopsony power
        Perfect freedom of entry and exit from the industry. Firms face no
        sunk costs - entry and exit from the market is feasible in the long
        run. This assumption ensures all firms make normal profits in the
        long run
        Homogeneous products are supplied to the markets that are perfect
        substitutes. This leads to each firms being passive "price takers"
        and facing a perfectly elastic demand curve for their product
        Perfect knowledge – consumers have readily available information
        about prices and products from competing suppliers and can access
        this at zero cost – in other words, there are few transactions costs
        involved in searching for the required information about prices
        No externalities arising from production and/or consumption which lie
        outside the market
        The real world of imperfect competition!

        Clearly the assumptions of pure competition do not hold in the vast
        majority of markets. Some suppliers may exert some control over
        market supply and seek to exploit their monopoly power. On the demand-
        side, some consumers may have monopsony power against suppliers
        because they purchase a high percentage of total demand. There are
        nearly always some barriers to the contestability of the market (see
        revision notes on barriers to entry) and far from being homogeneous,
        most markets are full of heterogeneous products due to product
        differentiation.

        Consumers nearly always have imperfect information (for example
        information gaps) and their preferences and choices can be influenced
        by the effects of persuasive marketing and advertising. In every
        industry there is always asymmetric information where the seller
        knows more about quality of good than buyer. The real world is one in
        which negative and positive externalities from both production and
        consumption are numerous – both of which can lead to a divergence
        between private and social costs and benefits. Finally there may be
        imperfect competition in related markets such as the market for
        essential raw materials, labour and capital goods.

        We can come fairly close to a world of perfect competition but in
        practice there are nearly always barriers to pure competition.

        Currency markets - taking us closer to perfect competition


        "As perfect competition is a theoretical absolute, there are no pure
        examples of a perfectly competitive market." (Source: Wikipedia)

        It is often said that the most competitive market possible is at best
        rare and probably does not exist at all in its purest form. Perhaps
        the vast market in global currencies takes us as close as we might
        reasonably get to a world of perfect competition?

        Brief background on currency dealing

        The foreign exchange market is where all buying and selling of world
        currencies takes place.
        There is 24-hour trading, 5 days a week (about 9pm London Sunday to
        10pm London Friday.
        Trade volume in the Forex market is around $1.2 trillion per day.
        This compares with to the New York Stock Exchange which trades `only'
        $25 billion per day. 31% of global currency trading takes place in
        London.
        Well over ninety per cent of trading in currencies around the world
        is speculative rather than the buying and selling of currencies to
        enable people and firms to conduct business in the real economy.

        The main players in the currency markets are as follows:

        Banks both as "market makers" dealing in currencies and also as end
        users demanding currency for their own operations). These banks
        include investment banks and commercial "high street" banks
        Hedge funds and other institutions (e.g. funds invested by asset
        managers, pension funds)
        Central Banks (including occasional currency intervention in the
        market)
        Corporations (mostly defensive hedging of exposures to risk)
        Private investors / market speculators / tourists

        Why does a currency market come close to perfect competition?

        Homogenous output: The "goods" traded in the foreign exchange markets
        are homogenous - a US dollar is a dollar whether someone is trading
        it in London, New York or Tokyo.

        Many buyers and sellers meet openly to determine prices: There are
        large numbers of buyers and sellers - each of the major banks has a
        foreign exchange trading floor which helps to "make the market".
        Indeed there are so many sellers operating around the world that the
        global currency exchanges are open for business twenty-four hours a
        day. No one agent in the currency market can influence the price on a
        persistent basis - all are `price takers'.

        Currency values are determined solely by demand and supply factors.

        High quality information: Most participants in the market - be they
        buyers or sellers - are well informed, in most cases with access to
        real time information and also plenty of background analysis on the
        factors driving the prices of each individual national currency.
        Technological progress has made much more information more
        immediately available at a fraction of the cost of just a few years
        ago. This is not to say that information is cheap - an annual
        subscription to a Bloomberg or a Reuter's news terminal will normally
        cost several thousand dollars. But the market is rich with
        information and transactions costs for each batch of currency bought
        and sold have come down.

        Seeking the best price: The buyers and sellers in foreign exchange
        only deal with those who offer the best prices.

        What are the limitations of currency trading as an example of a near-
        perfectly competitive market?

        Firstly the market can be influenced by official intervention via
        buying and selling of currencies by governments or central banks
        operating on their behalf. There is a huge debate about the actual
        impact of intervention by policy-makers in the currency markets.

        Those who are sceptical about the effects of intervention buying and
        selling to move currencies in anything other than the short term talk
        of governments not being able to "buck the market". Others conceded
        that intervention does change the ruling price for a currency
        especially if there is concerted and coordinated intervention by a
        number of countries acting in unison.

        Secondly there are costs involved in a bank or other financial
        institution when establishing a new trading platform for currencies.
        They need the capital equipment to trade effectively; the skilled
        labour to employ as currency traders and researchers.

        Despite these limitations, the foreign currency markets take us close
        to a world of perfect competition. Much the same can be said for
        trading in the equities and bond markets and also the ever expanding
        range of future markets for financial investments and internationally
        traded commodities.

        Establishing price and output in the short run under perfect
        competition


        The previous diagram shows the short run equilibrium for perfect
        competition. In the short run, the twin forces of market demand and
        market supply determine the equilibrium "market-clearing" price for
        the industry. In the diagram below, a market price P1 is established
        and output Q1 is produced. This price is taken by each of the firms.
        The average revenue curve (AR) is their individual demand curve.
        Since the market price is constant for each unit sold, the AR curve
        also becomes the Marginal Revenue curve (MR).

        For the firm, the profit maximising output is at Q2 where MC=MR. This
        output generates a total revenue (P1 x Q2). The total cost of
        producing this output can be calculated by multiplying the average
        cost of a unit of output (AC1) and the output produced. Since total
        revenue exceeds total cost, the firm in this example is making
        abnormal (economic) profits. This is not necessarily the case for all
        firms. It depends on their short run cost curves. Some firms may be
        experiencing sub-normal profits if average costs exceed the market
        price. For these firms, total costs will be greater than total
        revenue.



        Short run losses



        The adjustment to the long-run equilibrium

        If most firms are making abnormal (or supernormal) profits, this
        encourages the entry of new firms into the industry, which if it
        happens will cause an outward shift in market supply forcing down the
        ruling market price.

        The increase in supply will eventually reduce the market price until
        price = long run average cost. At this point, each firm in the
        industry is making normal profit. Other things remaining the same,
        there is no further incentive for movement of firms in and out of the
        industry and a long-run equilibrium has been established. This is
        shown in the next diagram.


        We are assuming in the diagram above that there has been no shift in
        market demand, i.e. we are considering an outward shift in market
        supply brought about by the entry of new competing firms each of whom
        is supplying a homogeneous product to the market. The effect of
        increased supply is to force down the market price and cause an
        expansion along the market demand curve. But for each supplier, the
        price they "take" is now lower and it is this that drives down the
        level of profit made towards the normal profit equilibrium.

        In an exam you may be asked to trace and analyse what might happen if

        There was a change in market demand (e.g. arising from changes in the
        relative prices of substitute products or complements)
        There was a cost-reducing innovation affecting all firms in the
        market or an external shock that increases the variable costs of all
        producers.
        Effects of a change in market demand

        We now consider how a competitive market adjusts to a change in
        market demand in both the short and the long run. In the short run,
        businesses are operating with at least one fixed factor. Therefore
        the elasticity of the supply curve depends on the amount of spare
        capacity, the level of existing stocks and also the time scale of the
        production process – in other words how fast and at what cost the
        industry can expand supply when demand changes.
      • markus petz
        Nice example of perfect competition. You will find that 2 things in the real world: 1. No one agent in the currency market can influence the price on a
        Message 3 of 4 , Mar 9 10:45 AM
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          Nice example of perfect competition. You will find
          that 2 things in the real world:

          1.
          "No one agent in the currency market can influence the
          price on a
          persistent basis - all are `price takers'."

          Currency speculation can be influenced - look at
          George Soros and the UK Pound sterling, not a weak
          currency.
          http://en.wikipedia.org/wiki/George_Soros


          2. Biggest factor I think, is actually the workers in
          a company, not product, wages in western economies are
          major part of production costs etc. So good reliable
          hard working staff leads to more success. And
          vice-versa.

          Markus

          --- gbengasmatch2 <gbengax@...> wrote:

          > Basic assumptions required for conditions of pure
          > competition to exist
          >
          > Many small firms, each of whom produces an
          > insignificant percentage
          > of total market output and thus exercises no control
          > over the ruling
          > market price.
          > Many individual buyers, none of whom has any control
          > over the market
          > price – i.e. there is no monopsony power
          > Perfect freedom of entry and exit from the industry.
          > Firms face no
          > sunk costs - entry and exit from the market is
          > feasible in the long
          > run. This assumption ensures all firms make normal
          > profits in the
          > long run
          > Homogeneous products are supplied to the markets
          > that are perfect
          > substitutes. This leads to each firms being passive
          > "price takers"
          > and facing a perfectly elastic demand curve for
          > their product
          > Perfect knowledge – consumers have readily available
          > information
          > about prices and products from competing suppliers
          > and can access
          > this at zero cost – in other words, there are few
          > transactions costs
          > involved in searching for the required information
          > about prices
          > No externalities arising from production and/or
          > consumption which lie
          > outside the market
          > The real world of imperfect competition!
          >
          > Clearly the assumptions of pure competition do not
          > hold in the vast
          > majority of markets. Some suppliers may exert some
          > control over
          > market supply and seek to exploit their monopoly
          > power. On the demand-
          > side, some consumers may have monopsony power
          > against suppliers
          > because they purchase a high percentage of total
          > demand. There are
          > nearly always some barriers to the contestability of
          > the market (see
          > revision notes on barriers to entry) and far from
          > being homogeneous,
          > most markets are full of heterogeneous products due
          > to product
          > differentiation.
          >
          > Consumers nearly always have imperfect information
          > (for example
          > information gaps) and their preferences and choices
          > can be influenced
          > by the effects of persuasive marketing and
          > advertising. In every
          > industry there is always asymmetric information
          > where the seller
          > knows more about quality of good than buyer. The
          > real world is one in
          > which negative and positive externalities from both
          > production and
          > consumption are numerous – both of which can lead to
          > a divergence
          > between private and social costs and benefits.
          > Finally there may be
          > imperfect competition in related markets such as the
          > market for
          > essential raw materials, labour and capital goods.
          >
          > We can come fairly close to a world of perfect
          > competition but in
          > practice there are nearly always barriers to pure
          > competition.
          >
          > Currency markets - taking us closer to perfect
          > competition
          >
          >
          > "As perfect competition is a theoretical absolute,
          > there are no pure
          > examples of a perfectly competitive market."
          > (Source: Wikipedia)
          >
          > It is often said that the most competitive market
          > possible is at best
          > rare and probably does not exist at all in its
          > purest form. Perhaps
          > the vast market in global currencies takes us as
          > close as we might
          > reasonably get to a world of perfect competition?
          >
          > Brief background on currency dealing
          >
          > The foreign exchange market is where all buying and
          > selling of world
          > currencies takes place.
          > There is 24-hour trading, 5 days a week (about 9pm
          > London Sunday to
          > 10pm London Friday.
          > Trade volume in the Forex market is around $1.2
          > trillion per day.
          > This compares with to the New York Stock Exchange
          > which trades `only'
          > $25 billion per day. 31% of global currency trading
          > takes place in
          > London.
          > Well over ninety per cent of trading in currencies
          > around the world
          > is speculative rather than the buying and selling of
          > currencies to
          > enable people and firms to conduct business in the
          > real economy.
          >
          > The main players in the currency markets are as
          > follows:
          >
          > Banks both as "market makers" dealing in currencies
          > and also as end
          > users demanding currency for their own operations).
          > These banks
          > include investment banks and commercial "high
          > street" banks
          > Hedge funds and other institutions (e.g. funds
          > invested by asset
          > managers, pension funds)
          > Central Banks (including occasional currency
          > intervention in the
          > market)
          > Corporations (mostly defensive hedging of exposures
          > to risk)
          > Private investors / market speculators / tourists
          >
          > Why does a currency market come close to perfect
          > competition?
          >
          > Homogenous output: The "goods" traded in the foreign
          > exchange markets
          > are homogenous - a US dollar is a dollar whether
          > someone is trading
          > it in London, New York or Tokyo.
          >
          > Many buyers and sellers meet openly to determine
          > prices: There are
          > large numbers of buyers and sellers - each of the
          > major banks has a
          > foreign exchange trading floor which helps to "make
          > the market".
          > Indeed there are so many sellers operating around
          > the world that the
          > global currency exchanges are open for business
          > twenty-four hours a
          > day. No one agent in the currency market can
          > influence the price on a
          > persistent basis - all are `price takers'.
          >
          > Currency values are determined solely by demand and
          > supply factors.
          >
          > High quality information: Most participants in the
          > market - be they
          > buyers or sellers - are well informed, in most cases
          > with access to
          > real time information and also plenty of background
          > analysis on the
          > factors driving the prices of each individual
          > national currency.
          > Technological progress has made much more
          > information more
          > immediately available at a fraction of the cost of
          > just a few years
          > ago. This is not to say that information is cheap -
          > an annual
          > subscription to a Bloomberg or a Reuter's news
          > terminal will normally
          > cost several thousand dollars. But the market is
          > rich with
          > information and transactions costs for each batch of
          > currency bought
          > and sold have come down.
          >
          > Seeking the best price: The buyers and sellers in
          > foreign exchange
          > only deal with those who offer the best prices.
          >
          > What are the limitations of currency trading as an
          > example of a near-
          > perfectly competitive market?
          >
          > Firstly the market can be influenced by official
          > intervention via
          > buying and selling of currencies by governments or
          > central banks
          > operating on their behalf. There is a huge debate
          > about the actual
          > impact of intervention by policy-makers in the
          > currency
          === message truncated ===


          ----------------------------------------------------
          | |
          | _------_ ô _------_ |
          | --- *V* --- |
          | / \ |
          | x x |
          | |
          | Marcus Petz |
          | |
          | Feed the raven and the white tailed eagles |
          | For the dawn is almost upon us |
          | I see it shining and will not sheath the sword |
          | May we die with it in our grasp... |
          | |
          ----------------------------------------------------
          http://secure.hospitalityclub.org/hc/travel.php?cid=markuspetz



          ___________________________________________________________
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        • markus petz
          Hi All I just took part in a TIG consultation from the IYPF - www.iypf.org Now there plans to involve the young folks with the prsp consultation n further
          Message 4 of 4 , Mar 9 12:03 PM
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            Hi All I just took part in a TIG consultation from the
            IYPF - www.iypf.org

            Now there plans to involve the young folks with the
            prsp consultation n further work. Perhaps an online
            course - Selene Biffi <selene_biffi@...>, of YAC
            has mooted this idea. Can develop it on the wiki and
            also with iypf and tig folks.

            You can see more here:

            http://www.imf.org/external/np/exr/facts/prsp.htm

            My comments are below.

            Markus

            --- Edward Cherlin <echerlin@...> wrote:

            > Well, here we are, the first six of us. To get our
            > Investigation
            > started, I would like to ask you all to look at two
            > articles on
            > Wikipedia: "Perfect Competition", and "Fundamental
            > theorems of welfare
            > economics" (which I am in process of editing).

            OK when edited let us know!

            >
            > Exercises:
            >
            > 1. Why are we reading this?

            to bring theory to praxis.

            > 2. How does this relate to the stated objective of
            > eliminating poverty?
            > 3. Is there actually a correlation between economic
            > growth and
            > reduction of poverty, as goals, with closer
            > approximation to the
            > conditions of Perfect Competition? Start with the
            > case of the
            > Netherlands after throwing off Spanish rule.

            has been - perhaps this can be developed into an
            online course, which many of the PRSP guys want.

            > 4. Are there any markets where perfect competition
            > comes close to
            > prevailing?

            perhaps some fixed market economies have this?

            With what results?
            > 5. What effects would universal access to the
            > Internet have on
            > competition?

            increase it and drive prices down, see the
            e-businesses where this has happened. But still folks
            will buy stuff, look at Pegasus mail - free and open
            office the same yet folks use Microsoft that costs and
            is not so good!

            On economies?
            > 6. Suggestions, please, on these economic questions,
            > and on how or
            > what to investigate.
            >
            > Please share your thoughts on these questions with
            > the group. Then we
            > can discuss.


            I would like to discuss factors (mostly cultural
            barriers) and how we go beyond them, e.g. hithiking
            amd hospitality services - why don't more people use
            these free human centric services. And why do they not
            work so well?

            thanks Markus

            >
            > After this, we will look at my collection of global
            > Best Practices for
            > dealing with poverty, and then get to business: What
            > are the most
            > effective actions we can take to deal with global
            > poverty?
            >
            > Yahoo allows us to share documents, links, photos, a
            > calendar, and
            > other features. I have started to populate them, and
            > welcome your
            > additions.
            >
            > --
            > Edward Cherlin
            >
            http://www.linkedin.com/profile?viewProfile=&key=82712
            > Earth Treasury End Poverty at a Profit
            > http://wiki.laptop.org/go/Earth_Treasury
            > WIRE AFRICA http//www.wireafrica.org/
            >


            ----------------------------------------------------
            | |
            | _------_ ô _------_ |
            | --- *V* --- |
            | / \ |
            | x x |
            | |
            | Marcus Petz |
            | |
            | Feed the raven and the white tailed eagles |
            | For the dawn is almost upon us |
            | I see it shining and will not sheath the sword |
            | May we die with it in our grasp... |
            | |
            ----------------------------------------------------
            http://secure.hospitalityclub.org/hc/travel.php?cid=markuspetz



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