Purpose:

Objectives:

1. A competitive industry (or market) is one in which there are many independent buyers and sellers. No one firm or consumer affects a large percentage of the market.
2. Market pressures will force competitive firms to use the least costly method of production and force them to expand production up to the point at which the marginal cost of production equals the market price. (This results in an efficient allocation of resources.)
3. Elasticity is defined as the percentage change in one economic variable, such as sales of automobiles, divided by the percentage change in a related variable, such as the price of automobiles.
   
   
   1. If the price elasticity of demand is very low (inelastic) there will be large changes in price when there is a sudden increase or decrease in supply.
   2. The degree of elasticity depends on the length of the time interval over which it is measured. Elasticities will generally be greater if firms and consumers are given more time to respond.
4. The government has attempted to maintain farm incomes by trying to keep agricultural prices from falling too low. Government programs have tried to support prices by:
   
   
   1. subsidizing foreign demand for U.S. agricultural products.
   2. buying part of the “surplus.”
   3. encouraging farmers not to produce (acreage restriction programs).