Market Structures and
Market Failures
What happens when markets do
not work perfectly?
Characteristics That Define
Market Structure
Number of Producers- the number of
producers in a given market
Similarity of Products- the degree to which
products in a market are similar
Ease of Entry- how easy it is to start a new
business and compete with established
businesses
Control over Price- how one can influence
price by increasing or decreasing price.
(Market Control)
Characteristics of “Perfect
Competition”
Many Producers and Consumers- large
numbers promote competition
Identical Products- Commodity
Products that are exactly the same no matter
who produces it.
Easy Entry into market- few restrictions
No Control over Prices- No market power
WIO: Perfect Competition
Make a simple sketch of a consumer
and a producer. Add a thought bubble
for each person that explains one of
the benefits of perfect competition.
What is a Monopoly, and Why
Are Some Legal.
Monopoly- Single producer of a product
that has no close substitutes.
Characteristics of Monopolies
One Producer- No competition
Unique Product- Only product of its
kind, no good substitutes.
High barriers to entry- limit or prevent
others from entering market. (Main
factor to why they exist)
Substantial Price Control-Great Market
Power, no fear of undercutting.
Legal Monopolies
Resource Monopolies- control of a key
natural resource, other firms have no
access.
Government-created monopoliescreated when in public interest
Natural Monopolies-when a firm can
provide a good or service more
efficiently than 2 or more companies.
Why Monopolies are bad for
Consumers
Consumers may pay more than they
would in a competitive market
Monopolies have less incentive to
innovate or to satisfy consumers.
Strong possibility of lesser product
quality and fewer product choices.
Characteristics of an
Oligopoly
Oligopoly- a market or an industry
dominated by just a few firms that
produce similar or identical products.
Few Producers
Similar Products
High barriers to entry
Some control over prices
Characteristics of
Monopolistic Competition
Monopolistic Competition- Large
number of producers providing goods
that are similar but varied.
Many Producers
Differentiated Products
Few barriers to entry
Some control over prices.
WIO: Comparison Chart
Market
Structures
Number of
Producers
Products
Ease of Entry Price Control
Perfect
Competition
Monopolistic
Oligopoly
Monopoly
Good Descriptions!
(May use book to help out)
Market Failures: Externalities
and Public Goods
Market Failure: economy fails to use all its
resources effectively and efficiently
Externality: Side effect of production or
consumption that has consequences for
people other than consumer or producer
(examples: factory pollution, Corn Syrup
company odor, etc.)
Negative externality: cost that falls on
someone other than producer or consumer
Market Failures: Externalities
and Public Goods
Positive Externality: benefit that falls
on someone other than the producer or
consumer (ex: neighbor’s flower bed,
company creating a less pollutant
vehicle, getting a college education)
Technology spillover: technical
knowledge from one company spreads
to another company or individual (ex:
more efficient car = more pollution
control
Problems of Private and
Public Goods:
Public goods: goods and services that
are not provided by the market system
because of the difficulty of getting
people who use them to pay for their
use (examples: fire and police,
national defense, public parks)
Private goods: goods and services that
are sold in markets
Private vs. Public goods
Private goods are excludable, which
means if you don’t pay for the good,
you don’t get to use it (example:
buying an apple)
Public goods are nonexcludable, which
means everyone can use it (example:
streetlight)
Private vs. Public goods
Private goods are a rival in
consumption: good can’t be
consumed by more than one person at
the same time (eating an apple)
Public goods are nonrival in
consumptions, meaning more than one
can enjoy at same time (streetlight)