Market Structure (4.1.2)
Table of Contents
Begin
Copyright © 2013 N.S.
End Show
Table of Contents
Access Prior
Knowledge
Set Goals
New
Information
Activity
Conclusion
Spectrum of
Competition
“Perfect Competition”
Learning Targets
What Is Perfect
Competition?
Is This Perfect
Competition?
“Perfect Competition”
Learning Targets
The Two Main
Characteristics
Other
Characteristics
Short Run Industry
Supply Curve
Long Run Industry
Supply Curve
Title Page
Table of Contents
Back
Last Slide
Viewed
Copyright © 2013 N.S.
Forward
Resources
End Show
Spectrum of Competition
Directions:
1) Cut this sheet in half on the dotted line.
2) On the bottom, write whatever information you know about each market.
3) Cut out the different markets from the bottom portion on the dotted lines.
4) Glue these markets into the empty box on the top portion. Glue them in order from
the “Most Competitive” market to the “Least Competitive” market.
Most Competitive
Least Competitive
See Answers
Title Page
Table of Contents
Back
Last Slide
Viewed
Copyright © 2013 N.S.
Forward
Resources
End Show
Spectrum of Competition
Directions:
1) Cut this sheet in half on the dotted line.
2) On the bottom, write whatever information you know about each market.
3) Cut out the different markets from the bottom portion on the dotted lines.
4) Glue these markets into the empty box on the top portion. Glue them in order from
the “Most Competitive” market to the “Least Competitive” market.
Most Competitive
Least Competitive
PERFECT
MONOPOLISTIC
COMPETITION COMPETITION
OLIGOPOLY
MONOPOLY
The focus today is just on Perfect Competition.
Title Page
Table of Contents
Back
Last Slide
Viewed
Copyright © 2013 N.S.
Forward
Resources
End Show
“Perfect Competition” Targets
Knowledge 1
Understand the definition and
characteristics of a market that is in perfect
competition.
Reasoning 1
Describe the difference between the shortrun and long-run industry supply curves.
Title Page
Table of Contents
Back
Last Slide
Viewed
Copyright © 2013 N.S.
Forward
Resources
End Show
What Is Perfect Competition?
1) In perfect competition, all
consumers and producers are
price takers.
Consumers
Title Page
Table of Contents
Back
Last Slide
Viewed
Copyright © 2013 N.S.
Forward
Producers
Equilibrium
Price
Resources
End Show
What Is Perfect Competition?
1) In perfect competition, all
consumers and producers are
price takers.
Consumers
2) This means that neither
consumers nor producers can do
anything to change price.
Title Page
Table of Contents
Back
Last Slide
Viewed
Copyright © 2013 N.S.
Forward
Producers
Equilibrium
Price
Resources
End Show
What Is Perfect Competition?
1) In perfect competition, all
consumers and producers are
price takers.
Consumers
2) This means that neither
consumers nor producers can do
anything to change price.
Producers
Equilibrium
Price
3) Consumers rarely affect price,
so we will focus on the producer.
Title Page
Table of Contents
Back
Last Slide
Viewed
Copyright © 2013 N.S.
Forward
Resources
End Show
What Is Perfect Competition?
1) In perfect competition, all
consumers and producers are
price takers.
Producers
Equilibrium
Price
2) This means that neither
consumers nor producers can do
anything to change price.
3) Consumers rarely affect price,
so we will focus on the producer.
4) The supply and demand model
is a model of a perfectly
competitive market.
Title Page
Table of Contents
Back
Last Slide
Viewed
Copyright © 2013 N.S.
Forward
Resources
End Show
The Two Main Characteristics
There are two conditions necessary for a perfectly competitive market to exist.
Title Page
Table of Contents
Back
Last Slide
Viewed
Copyright © 2013 N.S.
Forward
Resources
End Show
The Two Main Characteristics
There are two conditions necessary for a perfectly competitive market to exist.
1) Numerous Sellers
A) Generally there are hundreds or
even thousands of sellers.
Title Page
Table of Contents
Back
Last Slide
Viewed
Copyright © 2013 N.S.
Forward
Resources
End Show
The Two Main Characteristics
There are two conditions necessary for a perfectly competitive market to exist.
1) Numerous Sellers
A) Generally there are hundreds or
even thousands of sellers.
B) No seller can have a large market
share.
Title Page
Table of Contents
Back
Last Slide
Viewed
Copyright © 2013 N.S.
Forward
Resources
End Show
The Two Main Characteristics
There are two conditions necessary for a perfectly competitive market to exist.
1) Numerous Sellers
A) Generally there are hundreds or
even thousands of sellers.
B) No seller can have a large market
share.
C) This means no seller can produce
more than a small fraction of the total
market supply.
Title Page
Table of Contents
Back
Last Slide
Viewed
Copyright © 2013 N.S.
Forward
Resources
End Show
The Two Main Characteristics
There are two conditions necessary for a perfectly competitive market to exist.
=
1) Numerous Sellers
A) Generally there are hundreds or
even thousands of sellers.
B) No seller can have a large market
share.
C) This means no seller can produce
more than a small fraction of the total
market supply.
regard
=
=
all
=
=
=
Title Page
Table of Contents
Copyright © 2013 N.S.
Forward
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
Last Slide
Viewed
=
=
=
=
=
=
=
Back
=
=
=
2) Standardized Product
A) Consumers must
products to be identical.
=
=
=
=
Resources
=
End Show
The Two Main Characteristics
There are two conditions necessary for a perfectly competitive market to exist.
=
1) Numerous Sellers
A) Generally there are hundreds or
even thousands of sellers.
B) No seller can have a large market
share.
C) This means no seller can produce
more than a small fraction of the total
market supply.
regard
all
B) They do not have to be identical,
consumers just have to think they are.
Title Page
Table of Contents
Back
=
=
Last Slide
Viewed
Copyright © 2013 N.S.
=
=
=
=
=
=
=
=
=
Forward
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
2) Standardized Product
A) Consumers must
products to be identical.
=
=
=
=
Resources
=
End Show
Other Characteristics
Although not necessary, these other characteristics are often present in
perfectly competitive markets.
Title Page
Table of Contents
Back
Last Slide
Viewed
Copyright © 2013 N.S.
Forward
Resources
End Show
Other Characteristics
Although not necessary, these other characteristics are often present in
perfectly competitive markets.
1) Free Entry and Exit
It must be easy for new firms to open
a new business in the market.
Title Page
Table of Contents
Back
Last Slide
Viewed
Copyright © 2013 N.S.
Forward
Resources
End Show
Other Characteristics
Although not necessary, these other characteristics are often present in
perfectly competitive markets.
1) Free Entry and Exit
It must be easy for new firms to open
a new business in the market.
2) Perfect Information
Firms and consumers have complete
information about price, quality, and
production methods.
Title Page
Table of Contents
Back
Last Slide
Viewed
Copyright © 2013 N.S.
Forward
Resources
End Show
Other Characteristics
Although not necessary, these other characteristics are often present in
perfectly competitive markets.
1) Free Entry and Exit
It must be easy for new firms to open
a new business in the market.
2) Perfect Information
Firms and consumers have complete
information about price, quality, and
production methods.
3) No
Profit
Long-Run
Economic
Any profits being earned would cause
other firms to enter the market.
Title Page
Table of Contents
Back
Last Slide
Viewed
Copyright © 2013 N.S.
Forward
Resources
End Show
Short Run Industry Supply Curve
In the short run, the number of firms in the market is fixed.
Title Page
Table of Contents
Back
Last Slide
Viewed
Copyright © 2013 N.S.
Forward
Resources
End Show
Short Run Industry Supply Curve
In the short run, the number of firms in the market is fixed.
1) Each firm has its
individual supply curve.
own
Name
$1
$2
$3
$4
$5
Tim
5
6
7
8
9
Ben
5
6
7
8
9
Kate
5
6
7
8
9
These three farmers each produce bushels of corn.
Notice how each farmer has his/her own individual
supply schedule.
Title Page
Table of Contents
Back
Last Slide
Viewed
Copyright © 2013 N.S.
Forward
Resources
End Show
Short Run Industry Supply Curve
In the short run, the number of firms in the market is fixed.
1) Each firm has its
individual supply curve.
own
2) The sum of all individual supply
curves in a market is the industry
supply curve.
Name
$1
$2
$3
$4
$5
Tim
5
6
7
8
9
Ben
5
6
7
8
9
Kate
5
6
7
8
9
TOTAL
15
18
21
24
27
This final row represents the industry supply curve.
Title Page
Table of Contents
Back
Last Slide
Viewed
Copyright © 2013 N.S.
Forward
Resources
End Show
Short Run Industry Supply Curve
In the short run, the number of firms in the market is fixed.
1) Each firm has its
individual supply curve.
own
2) The sum of all individual supply
curves in a market is the industry
supply curve.
Name
$1
$2
$3
$4
$5
Tim
5
6
7
8
9
Ben
5
6
7
8
9
Kate
5
6
7
8
9
TOTAL
15
18
21
24
27
3) Under perfect competition,
output is determined by demand
and the equilibrium price.
D
S
Title Page
Table of Contents
Back
Last Slide
Viewed
Copyright © 2013 N.S.
Forward
Resources
End Show
Short Run Industry Supply Curve
In the short run, the number of firms in the market is fixed.
1) Each firm has its
individual supply curve.
own
2) The sum of all individual supply
curves in a market is the industry
supply curve.
Name
$1
$2
$3
$4
$5
Tim
5
6
7
8
9
Ben
5
6
7
8
9
Kate
5
6
7
8
9
TOTAL
15
18
21
24
27
3) Under perfect competition,
output is determined by demand
and the equilibrium price.
4) Because the number of firms is
fixed, profit can be made in the
short run.
Title Page
Table of Contents
Back
D
S
Last Slide
Viewed
Copyright © 2013 N.S.
Forward
Resources
End Show
Long Run Industry Supply Curve
Let’s say, however, that the firms in a perfectly competitive market are making a
profit in the short run. It will attract new firms to enter the market.
D
S1
This market is currently in short run equilibrium.
Title Page
Table of Contents
Back
Last Slide
Viewed
Copyright © 2013 N.S.
Forward
Resources
End Show
Long Run Industry Supply Curve
Let’s say, however, that the firms in a perfectly competitive market are making a
profit in the short run. It will attract new firms to enter the market.
1) When new firms enter, it
increases supply.
D
S1
S2
The new equilibrium is $3 with a quantity of 15.
Title Page
Table of Contents
Back
Last Slide
Viewed
Copyright © 2013 N.S.
Forward
Resources
End Show
Long Run Industry Supply Curve
Let’s say, however, that the firms in a perfectly competitive market are making a
profit in the short run. It will attract new firms to enter the market.
1) When new firms enter, it
increases supply.
2) When supply increases, output
rises and price drops.
D
S1
S2
The new equilibrium is $3 with a quantity of 15.
Title Page
Table of Contents
Back
Last Slide
Viewed
Copyright © 2013 N.S.
Forward
Resources
End Show
Long Run Industry Supply Curve
Let’s say, however, that the firms in a perfectly competitive market are making a
profit in the short run. It will attract new firms to enter the market.
1) When new firms enter, it
increases supply.
2) When supply increases, output
rises and price drops.
3) This will continue to happen
until no firm makes a profit.
D
S1
S2
S3
In this market, if $2 is the break even price, no
more firms will enter because profit is now $0.
The market is now in long run equilibrium.
Title Page
Table of Contents
Back
Last Slide
Viewed
Copyright © 2013 N.S.
Forward
Resources
End Show
Long Run Industry Supply Curve
Let’s say, however, that the firms in a perfectly competitive market are making a
profit in the short run. It will attract new firms to enter the market.
1) When new firms enter, it
increases supply.
2) When supply increases, output
rises and price drops.
3) This will continue to happen
until no firm makes a profit.
D
4) Since there is no profit, perfect
competition produces the most
efficient allocation of resources.
S1
S2
S3
In this market, if $2 is the break even price, no
more firms will enter because profit is now $0.
The market is now in long run equilibrium.
Title Page
Table of Contents
Back
Last Slide
Viewed
Copyright © 2013 N.S.
Forward
Resources
End Show
Long Run Industry Supply Curve
Let’s say, however, that the firms in a perfectly competitive market are making a
profit in the short run. It will attract new firms to enter the market.
1) When new firms enter, it
increases supply.
2) When supply increases, output
rises and price drops.
Short Run
Supply
Long Run
Supply
3) This will continue to happen
until no firm makes a profit.
4) Since there is no profit, perfect
competition produces the most
efficient allocation of resources.
5) The long run industry supply
curve is always flatter (more
elastic) than the short run.
Title Page
Table of Contents
Back
The LRS is always flatter than the SRS
because firms are able to freely enter and exit
the market in the long run.
Last Slide
Viewed
Copyright © 2013 N.S.
Forward
Resources
End Show
Is This Perfect Competition?
DIRECTIONS
Several markets are listed below. Use the characteristics of perfect
competition to decide whether each market is perfectly competitive or not.
There are questions for each characteristic of perfect competition for each
market.
Title Page
(a)
Complete this version if you feel you need the
teacher to work with you on this topic.
(b)
Complete this version if you feel you have a fairly
good understanding of this topic.
(c)
Complete this version if you feel this topic is easy.
Table of Contents
Back
Last Slide
Viewed
Copyright © 2013 N.S.
Forward
Resources
End Show
“Perfect Competition” Targets
Knowledge 1
Understand the definition and
characteristics of a market that is in perfect
competition.
Reasoning 1
Describe the difference between the shortrun and long-run industry supply curves.
Title Page
Table of Contents
Back
Last Slide
Viewed
Copyright © 2013 N.S.
Forward
Resources
End Show
Resources
Title Page
Table of Contents
Back
Last Slide
Viewed
Copyright © 2013 N.S.
Forward
Resources
End Show