Perfect economy is a market that is characterized by perfect conditions such that there is no participant with enough power to set prices for a homogenous product. The conditions that characterize such a market include many buyers and sellers, perfect information as well as presence of homogenous products (Varian, 45). There are no barriers to entry or exit in a perfect economy and the property rights are well outlined. As well, every seller is a price taker due to the presence of rational buyers and hence profit maximization. Perfect competition is advantageous because there are no restrictions to market entry or exit and the number of buyers and sellers is large. Additionally, the competition offers flexibility where buyers can move from one seller to another (Varian, 45).
Imperfect competition is a market that contains some sellers or buyers who have the power to control the market prices. Forms of imperfect competition include monopoly where there is only one supplier of a certain product, oligopoly, which is characterized by a few sellers while monopsony is a market that comprises of a single buyer. On the other hand, oligopsony involves a market with many sellers that deal with few buyers (Varian, 102). Another form of imperfect competition is monopolistic market in which there are many firms each with a small market share and slightly differentiated goods. The role of the government in an imperfect competition is to regulate and provide sensitive goods such as energy, weapons, and security (Levy, 30). Abusive behaviors that can arise when one individual dominates a market include unequal distribution of goods and hence scarcity. Sellers may abuse buyers by setting high prices and making it impossible for some to afford the goods.
Economic man is a model individual who can satisfy the models of economics that are designed to push for consumer equilibrium. As such, the man is capable of maximizing on situations to achieve the highest with information available on given opportunities and choices (Levy, 56). The economic man originated in the 19th century when critics used the term to describe the political economy work of John Stuart Mill. The role of human nature in science economics is to help in understanding the nature of this branch of economics. Through studying the nature of man, it is possible to understand the aspects of science economics. Economics should understand the theories regarding human nature so that they can understand how the science of economics is shaped by human nature (Levy, 390).
The philosophical foundation of this models revolves around the epistemological characteristics of humans who are wealth seeking and selfish for their well-being. As such, the interpretations have been based the ability of man to economize due to the limited resources required to achieve different goals by man. According to Adam Smith, the pursuit of self-interests by humans can be beneficial to the society because through this pursuit humans have made the society a better place for others as they achieve their own goals. For instance, entrepreneurs create jobs for others in the pursuit of their own interests (Levy, 410).
The ideology of economic man has received criticisms including the fact that society’s and people’s choices as well as buying and selling of goods take sharply different positions from those portrayed by the model of economic man (Levy, 400). Other economists argue that the economic man theory places more emphasis on rewards and punishments, which can hinder the power of motivation in a real situation. As well, some critics point out that the economic man is an image who bears great understanding of microeconomics as well as knowledge in economic forecasting essential in making decisions making him ideal for real life (Baumol and Alan , 260). Apart from that, there has also been criticism concerning the inner conflicts that real people experience regarding their short and long-term goals or between societal versus individual values. Public administration should understand this theory because they are involved in making crucial decisions affecting the society. As such, making decisions based on the ideality of the economic man may be difficult for the real man to get the most out of the choices given (Levy, 400).
Scarcity is an economic situation whereby the resources become unlimited hence not enough to satisfy human wants and needs. Scarcity is central to economic problems because it results in uncontrolled competition. As such, people would compete to get the scarce resource using the criteria that have been set to get the commodity (Baumol and Alan, 300). For instance, people would be competing to work and get money to pay for the resources in the case where money is the criteria set to get that resource. The economic man makes the best choice and makes the most out of the alternatives given. As such, he does not rush in his decision-making in case of scarcity (Baumol and Alan, 300). Economic man does not apply in the current social and economic conditions because his description has exempted him from real life experiences. His world is an ideal one where every decision can be made to his advantage.
Supply and demand are the amounts of available resources or commodities and the willing buyers available. As such, supply and demand is a way of regulation prices because the prices are set according to the availability of product as well as buyers (Varian 490). Therefore, it is a model of price determination in a certain market. The curve shown is a representation of supply and demand and depicts how prices determine the quantity demanded. As such, quantities demanded increase as the prices go down and vice versa (Varian 490). For instance, if the price of a car were to go down, people would own different car models, and many people would own cars, on the other hand, if prices were to go up, few people would own cars.
Growing literacy affects the supply and demand because as people become knowledgeable, their choices vary and hence their needs. An increased computer literate workforce will reduce the output cost because there is a reduction in labor costs (Varian 490). One computer literate employee can perform different tasks simultaneously as opposed to having several employees. On the other hand, increasing educated workforce results in increased labor costs and hence increase in output costs. An example of a change in demand is the current demand for mobile phones by cell phone users (Varian 490). As such, the prices have gone down, and the availability of cell phones has increased. In case the demand is not met, the prices will go up because the supply will be low. Trade restrictions result in increased prices due to low supply from local producers. As well, trade restrictions result in lack of preferences and variations (Varian 490).
Baumol, William J., and Alan S. Blinder. Microeconomics: Principles and policy. Cengage Learning, 2015: 81- 301
Levy, John M. “Essential Microeconomics for Public Analysis.” Westpot, Connecticut: Praeger (1995): 23-800
Varian, Hal R. Intermediate Microeconomics: A Modern Approach: Ninth International Student Edition. WW Norton & Company, 2014: 1-492