a Summary by:
Roni Jatmiko (120720140006)


          The video above is a parody of American hip hop duo Macklemore and Ryan Lewis's popular song – "Thrift Shop", which not only contains hilarious lyrics, but also expresses social critics in the recent economic situation.

          As the title suggests, essentially the parody video illustrates the perfect competition markets. In a perfectly competitive market there are a lot of players each of whom produce a low percentage of market output and cannot influence the prevailing market price. Likewise, no single buyer or seller is large enough to influence the market price.

Here are other characteristics of Perfect competitive market:
  • Good knowledge about product quality, price, and cost
  • Identical products are provided to the markets that are perfect substitutes.
  • Perfect resource mobility - no Barriers to entry and to exit from the industry
  • No externalities arising from production and/or consumption.
          A purely competitive market is also known a "price takers" market because sellers must take the current market price. If they set a price above the market price, no one will buy their product because potential buyers will simply shift to other sellers. Conversely, selling below the market price will just reduce profits and it also doesn't make sense since they can sell as many commodities as they want to at the market price. This idea is very well expressed by the singer, "I'mma shut this business down... no for real, demand's below AVC".


Equilibrium in perfect competition

          In the short run under perfect competition, businesses can generate super-normal profits or losses. Nevertheless, in the long run firms are attracted into the industry if the existing firms are making super-normal profits. This is due to the fact that there are no obstacles to entry and because there is perfect information.

Perfect Competition model in the real world

          There are only a handful of markets or industries in the real world are perfectly competitive. E.g. how homogeneous is the output of real firms, assumed that even the smallest of firms in product manufacturing or services try to vary their products.

          However unrealistic it is, still a suitable model for two different reasons. Firstly, numerous primary and commodity markets, such as coffee and tea, show many of the features of perfect competition. Secondly, for other markets in manufacturing and services, aviation business for example, the model is a useful measure by which regulators and economists can analyze the levels of competition in real markets.

The original music video

          Not only the parody version, the original music video also conveys a microeconomic perspective, especially in the sense of consumer behavior. It basically describes the artist's preference of goods at reasonable price compared to fancy branded products that cost much more expensive for relatively equal benefits.



References:
  1. Perfect competition, Khan Academy, accessed on August 30, 2014
  2. Microeconomics - Perfectly Competitive Markets, Investopedia, accessed on August 30, 2014
  3. Macklemore Lyrics - Thrift Shop, A-Z Lyrics