MARKET STRUCTURES
What is a Market Structure?
 Market Structures, by book definition, is
the nature and degree of competition
among firms operating in the same
industry. More simply put, market
structures are the ways in which the market
places for specific products are grouped
together. Economists have divided this into
four groups: perfect competition,
monopolistic competition, oligopoly, and
monopoly.
 Each of you will create a spectrum of the
different types market structures that
exist in our economy.
 Pure Competition
 Monopolistic Competition
 Oligopoly
 Monopoly
What is a spectrum?
Pure
Competition
Monopolistic
Competition
Oligopoly
Monopoly
Underneath each of the market Structures
you will need to give me information of each
structure.
What information will you
need?
 Explain the market Structure
 What are the market structures
characteristics?
 Profit Maximization (how do each of these
structures find the ways to maximize
profits when they produce the product?)
 5 examples on your own
 Extra information: most of these structures
have unique information that I want you to
place on your assignment.
Which Structure(s)?
 Use your diagram to read about and
examine the 4 different types of market
structures.
 Tell me which structures apply to which of
the characteristics. (some have multiple
answers)
Chapter 7.2
 Use the Guided Reading page
provided to work your way
through chapter 7 section 2.
Answer all appropriate
questions with as much
information as possible.
Market Failures
 When one of the following conditions are
significantly altered it creates a market
failure:
 Adequate competition must exist in all markets
 Buyers and sellers must be reasonably well-
informed about conditions and opportunities in
these markets
 Resources must be free to move from one
industry to another
 Prices must reasonably reflect the costs of
production.
Inadequate Competition
 Consequences of no competition
 Not using our resources
efficiently
 Higher prices and less output
 Ability to influence politics by
threatening to leave a
particular state
Inadequate Information
 Some information needs to find its
way to the consumers but is very
difficult to obtain; this creates a
market failure.
 What experience from your life do
you feel like you received
inadequate information in the
purchase of a product? (1)
Resource Immobility
 Resources must be flexible in order
to create an efficient economy; this
includes the labor force.
 Why must we as a labor force be
“flexible” when we are obtaining
work? (2)
Externalities
 Basically, this is a fancy word for
side effects on a third party.
 Can be good (positive) or bad
(negative)…
Examples of Externalities:
Positive or Negative?????(3)
 A new factory opens up on 620; there are a lot
of smoke stacks coming out of the factory;
 The government implements new grants to
help more people move on to a higher
education.
 Ford cars development center opens in the
south Austin area.
 A brand new highway going from downtown
through Lakeway is developed.
 A new neighbor moves in next door and seems
to enjoy playing music exceptionally loud.
Public Goods
 Products that are collectively
consumed by everyone, and whose
use by one individual does not
diminish the satisfaction or value
available to others.
 What are some public goods that we
experience pretty much on a daily
basis?(4)
 Public goods illustrates that
while the market is very
successful in satisfying
individual wants and needs, it
may fail to satisfy them on a
collective basis.
 Write down in your own
words what you believe the
role of the government
should be in society. Think
about this locally, state-wide,
and federally.(5)
The Role of the Government
 Encourage Competition
 Regulate monopolies
 To take over certain activities
which are better run by the
government;
 Makes estimates to carry out
social and legal obligations;
Trusts
 A legally formed combination of
corporations or companies; was
done to take power over a
market, basically creating a
monopoly.
 Government created antitrust
legislation in order to prevent
the market failure of
“inadequate competition.”
Antitrust Legislation
 Sherman Antitrust Act (1890) first law
against monopolies which sought to protect
trade and commerce.
 Clayton Antitrust Act (1914) outlawed price
discrimination (charging different prices to
different customers)
 Federal Trade Commission Act (1914) right
to cease and desist orders (requires a company
to stop an unfair business practice that
reduces or limits competition among firms)
 Robinson-Patman Act(1936)  Strengthen the
Clayton Act, especially price discrimination.
Government Regulation
 When the government knows
something to be necessary and
instead of shutting the business
down, they have many rules to
follow.
 Goal of regulation is to set the
same level of price and service
that would exist under
competition.
Public Disclosure
 The requirement that businesses reveal
information to the public.
 The purpose is to provide the market with
enough data to prevent market failure due to
“inadequate information.”
 Examples: Food and Drug Administration and
the Federal Deposit Insurance Corporation
(FDIC).
The Internet and its Effects
on Disclosure
 How has the internet become
such a huge part in the
disclosure of information to
the public? Think about cost,
availability, etc.(6)
Review: Chapter 7
 Each group will start out at a specific topic:
without using notes or the textbook (based
off what you remember), you need to brain
storm with your group to come up with one
good piece of information to write out clearly
on the paper. We will rotate between topics
and each group will be required to add one
good fact about the topic to the page.
Topics
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Perfect Competition
Monopolistic Competition
Oligopoly
Monopoly
Market Failure: inadequate competition
Market Failure: inadequate information
Market Failure: Resource immobility
Market Failure: Externalities
Public Goods
Government Regulation (legislation, etc.)
Public Disclosure