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PERFECT COMPETITION: An ideal market structure characterized by a large number of small firms, identical products sold by all firms, freedom of entry into and exit out of the industry, and perfect knowledge of prices and technology. This is one of four basic market structures. The other three are monopoly, oligopoly, and monopolistic competition. Perfect competition is an idealized market structure that's not observed in the real world. While unrealistic, it does provide an excellent benchmark that can be used to analyze real world market structures. In particular, perfect competition efficiently allocates resources.

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Lesson 18: Banking | Unit 3: Reserve Banking Page: 16 of 24

Topic: Goldsmith Reserves <=PAGE BACK | PAGE NEXT=>

Knights make gold deposits, others withdraw gold, merchants seek investment loans, and others repay loans.

Fred must keep sufficient gold to satisfy any withdrawal.

Required reserves:

  • Fred concludes that he needs no more than 10 pounds of gold to back each 100 pounds of gold deposits.
  • He doesn't need to keep 100% of the deposits in reserves.

Fred has discovered modern fractional-reserve banking.

Excess Reserves:

  • Fred uses the other 90% for the loans which earn interest and make his business a profitable one.

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ELASTIC SUPPLY

The general supply relation in which relatively small changes in price cause relatively large changes in quantity supplied. Small changes in price cause relatively large changes in quantity supplied or the percentage change in quantity supplied is larger than the percentage change in price. This characterization of elasticity is most important for the price elasticity of supply. Elastic supply is one of two general elasticity relations for supply. The other is inelastic supply.

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APLS

BEIGE MUNDORTLE
[What's This?]

Today, you are likely to spend a great deal of time browsing through a long list of dot com websites looking to buy either a set of steel-belted radial snow tires or a wall poster commemorating the 2000 Presidential election. Be on the lookout for crowded shopping malls.
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This isn't me! What am I?

More money is spent on gardening than on any other hobby.
"Man is born to live, not to prepare for life. "

-- Boris Pasternak, writer

BPEA
Brookings Papers on Economic Activity
A PEDestrian's Guide
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