- Describe the role of competition in a market economy
- Understand the causes and effects of monopoly
- Examine the role of profit in a market economy
Reading For This Module:
- Profits by Lester C. Thurow
- Competition by Wolfgang Kasper
- Monopoly by George J. Stigler
Little did you know that you’ve been studying economic and financial principles all this time!
Why can’t we all just cooperate, without any seemingly destructive competition? In this module, we will learn that competition, while it may seem destructive, actually serves an important purpose in markets. We will also explore the role of profit, and contrast monopoly with competition.
Dr. Wentland Lecture: Monopoly, Competition, & Profit
Part. 1 (video) (20:43)
These videos discuss why competition and profit have such an important role in a market economy. Also, watch for what happens in absence of competition…
Part. 2 (video) (14:10)
Part. 3 (video) (14:36)
Why Do We Exchange Things? (video) (04:04)
If we each have a boxed lunch with the same sandwich, chips, a pickle, and a cookie, why would we consider trading items? Perhaps I prefer chips and you prefer cookies. Maybe I’ll give you my cookie for your chips. Now both of us are happier with our lunches. This is one example of how exchange can make people better off even without increasing the total amount of wealth.
Exchange helps correct mistakes in allocation and it makes everyone involved happier. Professor Michael C. Munger offers a few examples of how exchange can make people happier whether people have the same preferences or different preferences, the same stuff to start with or different stuff. The ability to make people better off by simple exchange may seem like magic, Munger says, but it’s just markets. (-from video description)
The Role of Profit | Interview with Frederic Sautet (video) (04:48)
What is profit? Is it wrong to profit? Before answering that question, maybe we should start with a more mundane question: What do profits do? Or, how does the system work? In this exclusive FEE video, economist Frederic Sautet explains that profit guides entrepreneurs. If there is no profit (or loss), there is no guide.
(-from video description)
(need direction here as to whether they are for reference or in the preparation of an assignment)
The Great Economic Problem (8:12)
This video discusses the broader role of markets and competition, where the goal is to organize our resources the best we can.
Speculators…do we really need them? (10:50)
This video discusses the important role of speculation in markets. While many people think making profit on “making things” is acceptable, many fewer think you should be able to make a lot of money by merely speculation. This video offers a counter-intuitive view.
Profit and competition play an incredibly important role in a successful economy. Without the incentives that they provide, we can see examples of how things might be when we look at businesses without any competition (monopolies) and how poor the results tend to be. Adam Smith was famous for emphasizing that profit and competition play such an important role for growing our economy and efficiently allocating resources. Within this module, we can begin to see why these counter-intuitive ideas make more sense.