The small island of Tap, inhabited by the Tapese people, produces a single variety of corn. At the present time, each farmer produces his or her own corn, harvests it and carries it to the market for sale. On any market day in Tap, you will find many different sellers of corn. Competition between the corn sellers is very fierce-as a result, corn prices are quite low. Mega Company, the local beef producer, has announced that it wants to get into the corn business. The president of Mega Company believes that it would be more efficient to bring together all the farmers’ corn at one large production facility where quality and packaging can be better controlled. Thus Mega Company acquires a license to enter into the corn industry, and begins buying all the corn from the individual farmers, packaging it, processing it and selling it in the market. The people of Tap are quite happy with the new packaging, and the uniform quality of the corn. However, the Tapese people also notice that the price of corn on the market begins to rise.
Using your knowledge of market structures in microeconomics, explain the changes in the corn industry in Tap.
Develop a response that includes examples and evidence to support your ideas, and which clearly communicates the required message to your audience. Use appropriate economic principles concepts and terms. Write in your own words. This is not a research paper. Do not include quotations or cite others’ work. Length should be about 750 words.
Mediocre Writing Model
The Tapese people of the island of Tap are basically being exposed to two market structures, perfect competition and a monopoly. Many factors contribute to both of these market structures. The transition from perfect competition to a monopoly can have drastic changed for the people of Tap. Competition between the corn sellers was very fierce. This set the price to be competitive and low. After Mega Company brought all of the corn farmers together in one facility the price of corn started to increase. Only one company started selling corn and there was no competition. Mega Company could set the price of corn at whatever it wanted.
When farmers were selling their own corn, the market structure of Tap was perfect competition. In a Perfect competition market structure there is a lack of entry and exit barriers that makes it easy for anyone to enter the market. A market for corn is obviously homogenous. No matter who sells the corn it is most likely going to be the same. In this perfect competition the price of corn was extremely low because there was so much competition. A farmer did not have a privilege of setting a price for his crop. The farmers did not really benefit from a perfect competition, the consumers did. If a consumer did not like the price or product of a seller, then he had the option of going elsewhere and buying the good.
As soon as Mega Company started buying all the corn from all the farmers and packaged it in one facility, it became a type of monopoly. The problem with this is that Mega Company becomes the price maker. Even though the Tapese people are happy from the uniform quality of corn there is no competition. Mega Company set the price higher than when corn was selling in a competitive market. Since Mega Company is buying all of the corn, there is no opportunities for a new company to enter the market. The real winner in this market structure is Mega Company because it will make profits especially since there really isn’t a close substitute.
If the Tapes would like the price to go back down they would have to boycott corn. This would force the company to lower its quantity and then lower its price. A major problem of a monopoly is that it usually sells goods that you must have and need. Thats why its already a monopoly. Corn is a necessary good. You need it for many delicious things. In Brazil corn is even needed to make fuel. Farmers are probably happy that they do not need to go to the markets and sell their corn, but I bet they are not making huge profits from selling it to the monopoly. This monopoly might not be so bad because people might be willing to pay a bit more for the new packaging and the uniform quality of corn but truthfully they don’t really have a choice.
The gas company is an example of a monopoly. We live in a certain area and are forced to buy from them. If we do not pay what they are asking, then we won’t get warm water. We dont have a choice in that manner. A good example of perfect competition has to do with the farming market. You can go to any grocery store, or any farmers market and find different qualities and different prices. The small island of Tap first started with a market structure of price competition but then developed into a monopoly.