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Don't quote me, it is ages since I had my economics book open last time, but if I recall correctly, there is a confusing terminology here. Zero profit means in

Don't quote me, it is ages since I had my economics book open last time, but if I recall correctly, there is a confusing terminology here. Zero profit means in the context of economice profits that exceed risk adjusted return. That is, even in a perfect market, in the models you are allowed to pay a decent return to your capital, but not more. These extra profits are called almost as confusingly "rents" in economics. That's why "rent-seeking" is considered bad even if it is fine that your landlord collects rents from you. Two different things and one word.

hutzlibu 7y ago
Your answer and the others reinforce why I allways avoided everything with economics in university. The definitions and models are (mostly) just weird. I would intuitively define a free market, as a (virtual) place, where people can trade freely (goods or labour) without restrictions. And they profit, if they are better off with the trade, than without. The more free the market, the less restrictions. Why so complicated?
- vikramkr 7y ago
  It's actually too oversimplified to be a great model for most things. Extend your intuition to imagine that you have perfect competition where there are infinitely many identical goods all competing to the lowest price either no differentiation, and people will price at zero profit. To extend that to the real world requires more and more complications like the time value of money etc
  - hutzlibu 7y ago
    "Extend your intuition to imagine that you have perfect competition where there are infinitely many identical goods all competing to the lowest price either no differentiation, and people will price at zero profit. " But this is not reality. I doubt doing abstractions like these are helpful in understanding anything, when the base is so far off.
    - vikramkr 7y ago
      Yes nobody is denying that these arent reality. They're models, and you get far more sophisticated models after econ 101
      - hutzlibu 7y ago
        Ok. But then we are back at the beginning: "In a perfect free market the oil producers make zero profits" where this statement does not make sense, unless you apply weird economic definitions.
        vikramkr 7y ago
        Right, never said that was attainable or good. The point is that some people view perfect free markets as the ideal, and this is a move towards that, so people might view the market as getting g fixed rather than being broken.

hutzlibu 7y ago

Your answer and the others reinforce why I allways avoided everything with economics in university. The definitions and models are (mostly) just weird. I would intuitively define a free market, as a (virtual) place, where people can trade freely (goods or labour) without restrictions. And they profit, if they are better off with the trade, than without. The more free the market, the less restrictions. Why so complicated?

vikramkr 7y ago
It's actually too oversimplified to be a great model for most things. Extend your intuition to imagine that you have perfect competition where there are infinitely many identical goods all competing to the lowest price either no differentiation, and people will price at zero profit. To extend that to the real world requires more and more complications like the time value of money etc
- hutzlibu 7y ago
  "Extend your intuition to imagine that you have perfect competition where there are infinitely many identical goods all competing to the lowest price either no differentiation, and people will price at zero profit. " But this is not reality. I doubt doing abstractions like these are helpful in understanding anything, when the base is so far off.
  - vikramkr 7y ago
    Yes nobody is denying that these arent reality. They're models, and you get far more sophisticated models after econ 101
    - hutzlibu 7y ago
      Ok. But then we are back at the beginning: "In a perfect free market the oil producers make zero profits" where this statement does not make sense, unless you apply weird economic definitions.
      - vikramkr 7y ago
        Right, never said that was attainable or good. The point is that some people view perfect free markets as the ideal, and this is a move towards that, so people might view the market as getting g fixed rather than being broken.