classical economics predicts

If everyone product is identical, then it becomes a commodity. The only way the price will rise is if the raw materials needed to produce the commodity rise in price, or, if competition is reduced through consolidation or other means.

The expression "classical economics" refers to the simple formulas of suppy and demand and of perceived value which appear to govern markets. So, if a product produced by several manufacturers is not different from one manufacturer to the other (meaning that no manufacturer produces a product which the buyer considers superior to the product of other manufacturers), then the buyer will make his or purchase solely on price.

The expression "minimal level" refers to the lowest possible price at which the manufacturer will make a profit, and the lowest possible profit which the manufacturer is willing to accept.

There are several problems here which have to do with specific trading practices. For example, a manufacturer may sell a product at no profit at all, so as to have the lowest price. If this tactic is successful, the manufacturer will sell more of the product than his or her competitors, and be able to make a profit from volume sales. If you sell a great deal of your product, you will be able to buy the materials you use to manufacture the product at a lower price, and then you will be able to make a profit, even though you are offering your product at a lower price than the competition. This is known as "economies of scale"--referring to the savings you get from buying materials in larger quatities.

Additionally, a manufacturer may practice "dumping." This is a tactic in which the manufacturer sells a product at no profit, or even at a loss, in the attempt to drive competitors out of business. If this tactic works, when the competition is reduced, the manufacturer can then raise prices and make a much larger profit, because the competition has been reduced or eliminated. This actually works, and is the means by which Japanese manufacturers of televisions killed the television manufacturing industry in the United States, to give one example.

The author refers to classical economics because he or she is only discussing simple economic equations, and does not concern him- or herself with complex economic tactics such as economies of scale or dumping.

thanks for such a details explanation.

i understand these kind of tricky market policy in the market

However, it seems to me complex because i am stuck in some other place
look at this...



suppose,there are 5 suppliers supplies the SAME product X.

Now , what the para claims now ?
it seems to me it PREDICTS that prices of product X are same to all suppliers and also the profits are same to all suppliers.


is that ok ?

Yes, that is what the author is saying. He or she is also saying that, in these simple terms, the price of the product and the manufacturers profits will all reach an absolute low level, the "minimal level."

I suspect the author refers to "classical economics" because he or she wanted to explain a simple concept rather than dealing with very real economic practices such economies of scale, or market dumping, which would make the explanation more complex and confusing.

My response was the "classical" view.

I don't claim to be an economics expert, Setenta's post was much more detailed, but I think I captured the classical perspective well enough to pass ECO-101 and maybe even 102.