Perfectly Competitive Market Assumptions - Do They Hold For Economists?

This activity is appropriate for Principles of Microeconomics or a Labor Economics course. Prior to this activity, students should know about perfectly competitive factor markets, the conditions that must hold in order that markets are competitive, and the labor market. The activity can last between 10-20 minutes depending on the length of the discussion. This activity can be used in both small and large classes.

Overview

Prior to class, students listen to NPR Planet Money podcast episode titled: Speed Dating for Economists (Aired on 5/17/2017; Duration: 24 minutes; Link: https://www.npr.org/sections/money/2017/05/05/527087730/episdoe-769-speed-dating-for-economists). This podcast follows a job market candidate as he interviews during the ASSA meeting.

During class, students are asked to assess which of the assumptions of a perfectly competitive market is least likely to hold for this labor market. By examining the assumptions in this context, students further their understanding of perfectly competitive and labor markets.

Expected Student Learning Outcomes

In this activity, students will examine whether the assumptions of a perfectly competitive factor market hold for a specific market.

Information Given to Students

This activity is based on the podcast episode students listened to prior to class.

Which assumption necessary for competitive factor markets is least likely to hold in the labor market for new Ph.D. holders in economics?

A) Homogenous factors.
B) Perfect Information.
C) Free entry and free exit.
D) Many buyers and many sellers -> price takers.

Each team should simultaneously reveal its choice. A team representative, chosen at random, will share with the class the reasoning behind the choice. Each of the answers is plausible. This activity is graded based on the argumentation behind the choice. Each team should demonstrate an understanding of the assumptions of perfectly competitive markets. Each assumption should be assessed in the context of this labor market for economists.

Debriefing notes, including discussion questions:
* What was the most important reason for your choice?
* Are there assumptions that hold for other labor markets? (Consider other examples)

Closing Remarks:
It is important to recognize that the assumptions behind a perfectly competitive market don't hold for this labor market (or labor markets in general). Students should be aware of limitations of the perfectly competitive market assumptions.

The learning outcomes can be assessed with exam questions related to the assumptions of perfectly competitive markets. This can also be assessed with a question that asks a similar question for a different labor market (e.g. labor market for professional athletes, internships, etc). As before, the question will be assessed based on argumentation.

Prior to class, students listen to NPR Planet Money podcast episode titled: Speed Dating for Economists (Aired on 5/17/2017; Duration: 24 minutes; Link: https://www.npr.org/sections/money/2017/05/05/527087730/episdoe-769-speed-dating-for-economists).