3 ms·

I only did high-school economics, but it seems to me like there's a mix-up here between super-normal/abnormal profit and surplus? > Normally, a competitive mar

I only did high-school economics, but it seems to me like there's a mix-up here between super-normal/abnormal profit and surplus? > Normally, a competitive market has no surplus. The owner of a restaurant, the developer of a building in an unconstrained area like suburban Texas, the seller of cloth masks on Etsy, the freelance web developer – none of them is making a killing. People enter the market until profits are driven down to levels low enough to essentially be the owner-manager’s wage That sounds like a description of abnormal profit, and not surplus, which iirc is the difference between the price of an object and what consumers would be willing to pay / what producers would be willing to produce at? He seems to get into discussing actual surplus further down in the article though.

Hermel 6y ago
There are two mistakes in the quoted section: 1. Even under perfect competition, there is still a surplus. But it goes to the consumer. Example: a loaf of bread costs 1$ to produce, is sold for 1$ and delivers 3$ of value (economists call this value “utility”) to the consumer. In that case, the surplus was 2$ and fully went to the consumer. 2. The implied assumption is that perfect competition is “normal”. In reality, perfectly competitive markets are rare and there is a balance between firms constantly trying to find or create new market and competition entering the market. For example, Nike would insist that their sneakers are special and different from all the others. For the consumers that fall for these marketing tactics, Nike has no competition, because it is the only place where you can buy Nike sneakers. Same applies for most other products. It is quite rare to have a situation where two firms offer perfect substitutes. Therefore, perfect competition is not “normal”.
- zwaps 6y ago
  It actually depends on the elasticity of demand and the (marginal) cost curves how the surplus is distributed. What is true is that in a perfectly competitive market, there is no deadweight loss. The blog post, however, is wrong.

Hermel 6y ago

There are two mistakes in the quoted section: 1. Even under perfect competition, there is still a surplus. But it goes to the consumer. Example: a loaf of bread costs 1$ to produce, is sold for 1$ and delivers 3$ of value (economists call this value “utility”) to the consumer. In that case, the surplus was 2$ and fully went to the consumer. 2. The implied assumption is that perfect competition is “normal”. In reality, perfectly competitive markets are rare and there is a balance between firms constantly trying to find or create new market and competition entering the market. For example, Nike would insist that their sneakers are special and different from all the others. For the consumers that fall for these marketing tactics, Nike has no competition, because it is the only place where you can buy Nike sneakers. Same applies for most other products. It is quite rare to have a situation where two firms offer perfect substitutes. Therefore, perfect competition is not “normal”.

zwaps 6y ago
It actually depends on the elasticity of demand and the (marginal) cost curves how the surplus is distributed. What is true is that in a perfectly competitive market, there is no deadweight loss. The blog post, however, is wrong.