Free Market Competition in Economics: An Analysis of Potato Market

This essay examines the concept of a free market and competition through the example of the potato market. The potato market is characterized by homogenous products, a large number of buyers and sellers, and unrestricted entry and exit, closely resembling perfect competition. No single participant can influence prices, which are determined by supply and demand. High competition ensures that sellers earn only normal profits in the long run, as supernormal profits attract new entrants, eventually driving down individual profits. The analysis supports the argument that the potato market serves as a practical illustration of a perfectly competitive market where neither buyers nor sellers have control over pricing, making it a prime example for understanding free market dynamics. Desklib provides access to similar essays and study resources for students.

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ECONOMICS ASSIGNMENT

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Contents
Example of the free market and competition.............................................................................3
Reference....................................................................................................................................4

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Example of free market and competition
The best example of free market and competition can be the market of potato. Potato is a
homogenous product feature of which do not vary from one seller to the other. In addition to
that, the number of buyers and the sellers are very high as well (Friedman, 2017). The
number is so huge that none of the individuals in the market can influence the prices of
potato. For example, if a seller decides to set the price of per kg of potato above the
equilibrium price, he will lose customers to other sellers of the market and hence the
equilibrium price will remain the same. The prices in the market of potato are determined by
the interaction of demand and the supply curve.
Furthermore, the entry to and exit from the market of potato is also not restricted as any seller
can enter the market at any time. The capital expenditure to set up a business in the market of
potato is also not much high that can restrict the movement of the seller (Cowell, 2018). The
high level of competition in the market of potato allows the seller to earn an only a normal
profit in the long run. In the short run, when sellers earn a supernormal profit, more sellers
enter the market in order to earn a profit that eventually reduces the individual profit of the
sellers in the long run (Serrano & Feldman, 2018). Therefore, the market of potato is a close
example of a perfect competition where none of the buyers or sellers has any control over the
price.

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Reference
Cowell, F. (2018). Microeconomics: principles and analysis. Oxford University Press.
Friedman, L. S. (2017). The microeconomics of public policy analysis. Princeton University
Press.
Serrano, R., & Feldman, A. M. (2018). A short course in intermediate microeconomics with
calculus. Cambridge University Press.