Market Structures

Competition within our system

**Get Books pg 164**

Block One ReviewDemand: How much people are willing and able

to buy.

Supply: How much manufacturers are willing and able to produce.

Scarcity: When demand is higher than supply for a good/resource/service. Creating a shortage and lots of competition.

• Law of Demand: When prices go one way, demand will go the other. (Price goes up, demand goes down.

• Law of Supply: When prices go on way the supply will go the same. (Price goes up, supply goes up)

• Capitalism: An economic system where prices and production is determined by the mutual consent of buyers and sellers through the laws of supply and demand. Very little gov’t involvement and lots of private ownership.

Free Market Economics?• Market: Place where buyers and sellers come

together.• A free market is a market in which property

rights are voluntarily exchanged at a price arranged completely by the mutual consent of sellers and buyers.

• What is property?• What type of economic system is a free market

system?• What are examples of where the government

interrupts the free market?

Keep Your Hands Off

• Adam Smith :– The father of modern

economics.– Wrote “Wealth of

Nations”– The first book of modern

economics. – Human motives always

greed oriented.

• Laissez-Faire– Gov’t should not

interfere with commerce or trade.

– “allow them to do”

• “Invisible hand”– Market seems chaotic

and unrestrained, but is guided by supply and demand.

Perfect Competition

• Two types of competition in capitalism. Perfect and Imperfect.

• A large number of well-informed buyers and sellers who exchange identical products .

• Is their a such thing as perfect competition?– Examples?

Conditions needed for PC to exist1.) Large number of buyers

and sellers.

2.) Buyers and sellers deal in identical products?

3.) Buyers and sellers act independently.

4.) Buyers and sellers are reasonably well informed about products and prices

5.)Buyers and sellers are free to enter into and get out of business.

Q.) What sets the price under perfect competition?

A.) Supply and demand set the equilibrium price. Then each firm selects a level of output that maximize profits at that price.

Example of perfect competition? Explain.

• Although perfect competition rarely exist it is used as a benchmark for economist. What is more common are different forms of imperfect competition.

• Imperfect competition:– A market structure that lacks one or more of the

conditions needed for perfect competition. – This classification has three categories:

• Monopolistic Competition • Oligopoly• Monopoly

Monopolistic Competition• Has all the conditions of PC except for

identical products. Makes product slightly different to attract more customers and monopolize part of the market.

1. Uses product differentiation:-Real or imagined differences between competing products.

2. Also use non-price competition:-Using advertising, giveaways, to draw consumers to their product instead of price competition.

What is the biggest concern of Monopolistic competitors?

MC’s try to get you to pay a higher price for their product!!!!!!

Oligopoly• Structure where a few

very large sellers dominate the market.

• Any single firm can cause a significant change in output, sales, and prices in the industry as a whole.

• Examples?

• So large that when one firm acts the others follow.

• Collusion: a formal agreement to work together.

• Price-fixing: agreeing to charge a similar price.

• Products cost more or less?

Monopoly• Only one seller of a

particular product.

• Natural Monopoly:– Cost of production

minimized by having one firm do it.

– Examples?

• Geographic Monopoly:– Absents of other sellers in

certain geographic areas.– Examples?

• Technological Monopoly:– Based on ownership or

control of a manufacturing process. (Patent)

– Examples?

• Government Monopoly:– Involve products or

services that private industry cannot adequately provide.

– Examples?

Market Structure Assignment• Write a response to the quote “Consumers

benefit more from a market that is a Monopoly than they do a market that demonstrates Monopolistic Competition.”

• Two body paragraph minimum.• Possible things to include:

– Is this statement true/false? Why? Explain.– Provide examples of each to demonstrate your thesis.– Make sure you have a topic statement. – Use economic terminology and the laws of supply & demand.

Quiz 11.) List two types of monopolies?2.) Of the four types of Monopolies name one that

wouldn’t always cause prices to go up and might actually allow them to go down.

3.) As consumers what type of market would we like the least?

4.) Which of the following is best associated with Monopolistic competition?a. Price fixing b. Product differentiation c. Identical Products d. Small # of sellers

5.) A market with only one seller is called a ______.

6.) This economist stressed the need for a Free Market without government influence.

7.) A market with 2 or three sellers and lots of buyers is called ______________

8.) As consumers which of the four types of market structures would produce the cheapest goods?

9.) What is the one difference between perfect competition and monopolistic competition?

10.) A market with lots of sellers and buyers and identical products is considered ____________.