Market Structures
Competition within our system
**Get Books pg 164**
Block One Review
Demand: 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.
• Two types of competition in capitalism.
Perfect and Imperfect.
Perfect Competition
• 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 exist
1.) 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 1
1.) 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 ____________.