Name: _________________________________
Economics
Date: ____________________________
Chapter 7 – Market Structures
Outline
Section 1 – What is Perfect Competition?
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_______________ ____________________ – ideal model of a market economy
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____________________ of a Perfect Competition
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Numerous Buyers and Sellers
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Standardized Product
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Freedom to Enter or Exit Markets
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Independent Buyers and Sellers
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Well Informed Buyers and Sellers
Characteristic 1: Many ____________ and ____________
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A large number of buyers and sellers is ____________________ for perfect competition
so that no one buyer or seller has the power to control the price in the market
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When there are many sellers, buyers can ______________ to buy from a different
producer if one tries to raise prices above the market level
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When there are many buyers, sellers are able to sell their products at the market price
Characteristic 2: ____________________ Product
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Consumers consider one producer’s product essentially the __________ as the product
offered by another
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Products are perfect ____________________
Characteristic 3: Freedom to ____________ and ___________ Markets
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____________________ are able to enter the market when it is profitable and to exit
when it becomes unprofitable
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____________________ that a producer makes to enter a market is relatively low
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Market forces alone ____________________ producers to freely enter or leave a given
market
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Characteristic 4: ____________________ Buyers and Sellers
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________________ buyers or sellers join together to influence price
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Interaction between supply and demand set the ____________________ price
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Independent action ensures that the market will remain ____________________
Characteristic 5: ____________________ Buyers and Sellers
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Buyers and sellers have enough ____________________ to make good deals
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Buyers can _______________ prices among different sellers
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Sellers know what their ____________________ are charging and what price consumers
are willing to pay
Competition in the Real World
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_____ perfectly competitive markets because real markets do not have all of the characteristics
of perfect competition
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____________________ ____________________ – occurs in markets that have few sellers or
products that are not standardized
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Examples of Markets Closest to Perfect Competition:
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____________ – thousands of farmers grow corn and each one contributes only
a small percentage of the total crop – therefore, no one farmer can control the
price of corn. Farmers can only control how much they will grow
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_____________ – many cattle producers and there is little variation in a
particular cut of beef from one producer to another
Section 2 – The Impact of Monopoly
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____________________ – occurs when there is only one seller of a product that has no close
substitutes
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____________________ of a Monopoly
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Only one Seller
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Control of Prices
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Restricted, Regulated Market
Characteristic 1: Only _________ Seller
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A ___________ business is identified with the industry because it controls the supply of
a product that has no close substitutes
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Characteristic 2: A _________________, Regulated Market
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_____________________ regulations allow a single firm to control a market, such as a
local electric utility
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Characteristic 3: Control of ________________
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____________________ can control prices because there are no close substitutes for
their product and they have no competition
Types of Monopolies
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___________ of Monopolies
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________________ Monopoly – occurs when the costs of production are lowest with
only one producer
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____________________ Monopoly – exists when the government either owns and runs
the business or authorizes only one producer
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____________________ Monopoly – occurs when a firm controls a manufacturing
method, invention, or type of technology
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____________________ Monopoly – exists when there are no other producers within a
certain region
Examples of Types of Monopolies
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Natural Monopoly: A ____________ _________________
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It would be a waste of community resources to have several companies developing
separate, complex system in order to compete for business – a single supplier is most
efficient
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Government Monopoly: The ______________ ___________________
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Government run businesses provide goods and services that either could not be
provided by private firms or that are not attractive to them because of insufficient profit
opportunities
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Technological Monopoly: _______________________
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A patent gives an inventor the exclusive property rights to that invention or process for
a certain number of years
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Therefore no one can copy the product
Geographic Monopoly: ____________________ ______________
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Major sports leagues require that teams be associated with a city or region and limit the
number of teams in each league thus creating a restricted market
Profit Maximization by Monopolies
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Although a monopoly firm is the only supplier in its market, the firm ____________ charge any
price it wants. A monopolist still faces a ___________________________________demand
curve. (sells more at lower prices)
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A monopoly produces less of a product than would be supplied in a competitive market, thereby
artificially raising the equilibrium price
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Difficult to study this process in the real world because most countries have __________ to
prevent monopolies
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Example: __________ ____________________
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Pharmaceutical manufacturers offer an example of how companies with limited
monopolies try to maximize their profits during the 11 years they have with the patent –
during this time they try to maximize profits because when the patent expires they face
competition from other manufacturers who begin marketing generic versions of the
drug
Section 3 – Other Market Structures
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____________________ ____________________ – occur when many sellers offer similar, but
not standardized, products
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____________________ of Monopolistic Competition
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Many Sellers and Many Buyers
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Similar but Differentiated Products
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Limited Control of Prices
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Freedom to Enter or Exit Markets
Characteristics of Monopolistic Competition
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Characteristic 1: _________ Sellers and Many Buyers
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Number of sellers is usually smaller than in a perfectly competitive market but
____________________ to allow meaningful competition
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Sellers act ____________________ in choosing what king of product to produce, how
much to produce, and what price to charge
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Characteristic 2: Similar but ____________________ Products
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Sellers gain their monopoly-like power by making a ____________________ product or
by convincing consumers that their product is different from the competition (product
differentiation)
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Characteristic 3: _______________ Control of Prices
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Product differentiation gives producers limited control of price due to many
___________ substitutes for their products
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Characteristic 4: _______________ to Enter or Exit Market
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Does not require a large amount of _______________ for someone to start the business
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Some firms will not be able to compete and will start to take ________________ and
eventually leave the market
Characteristics of an Oligopoly
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____________________ – is a market structure in which only a few sellers offer a similar
product
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____________________ of an Oligopoly
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Few Sellers and Many Buyers
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Standardized or Differentiated Products
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More Control of Prices
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Little Freedom to Enter or Exit Market
Characteristic 1: ___________ Sellers and Many Buyers

Few firms ____________________ an entire market and produce a large part of the
total product in the market
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Characteristic 2: ____________________ or Differentiated Products
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May sell ____________ standardized or differentiated products
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When products are standardized, firms may try to differentiate themselves based on
_____________ name, _____________, or ____________________
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Characteristic 3: More _______________ of Prices
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Each one has ___________ control over product price because there are few sellers
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A ___________ made by one seller may cause the other sellers to respond in some way
Characteristic 4: _______________ Freedom to Enter or Exit Market
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Start-up costs are extremely ____________
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Firms in an oligopoly have ____________________ brands and plentiful resource that
make it difficult for new firms to enter the market successfully
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All of the ____________________ by firms in an oligopoly make it difficult for them to
exit a market because they will a lot of money
Section 4 – Regulation and Deregulation Today
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____________________ – a set of rules or laws designed to control business behavior
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____________________ legislation – defines monopolies and gives government the power to
control them
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____________ – a group of firms combined in order to reduce competition in an industry
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_________________ – the joining of two firms to form a single firm
Origins of Antitrust Legislation
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US government became ____________________ that these combinations would use their
power to control prices and output
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Example: Standard Oil Company
__________________ ____________________ ___________ (1890) – gave government the
power to control monopolies and to regulate business practices that might reduce competition
Antitrust Legislation Today
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US government has used antitrust legislation to ____________ ________ large companies that
attempt to maintain their market power through restraint of competition
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The government might allow a large ____________________ firm to remain intact because it is
the most efficient producer
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____________________ ____________________ ____________________ (FTC) and the
Department of Justice share responsibility for enforcing antitrust legislation
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Major focus of their work is the assessment of mergers to see if they benefit consumers
Prohibiting Unfair Business Practices
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Businesses that seek to counteract market forces can use a variety of methods
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_______________ _______________ – occurs when businesses agree to set prices for
competing products
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_______________ _______________ – occurs when competing businesses divide a
market amongst themselves
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_______________ _______________ – occurs when businesses set prices below cost for
a time to drive competitors out of a market
Protecting Consumers
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_______________ _______________ _______________ _______________ – requires a firm to
stop and unfair business practice
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_______________ _______________ – a policy that requires businesses to reveal product
information
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_______________ _______________ _______________ ______________________(FDA) –
1906 – protects consumers from unsafe foods, drugs, or cosmetics; requires truth in labeling of
these products
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_______________ _______________ _____________________________ (FTC) – 1914 –
enforces antitrust laws and monitors unfair business practices, including deceptive advertising
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_______________ ____________________ _______________________ (FCC) – 1934 –
regulates the market for stocks and bonds to protect investors
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_________________________ _________________________ _______________ (EPA) – 1970 –
protects human health by enforcing environmental laws regarding pollution and hazardous
materials
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_______________ _______________ _______________ _______________________ (CPSC) –
1972 – sets safety standards for thousands of types of consumer products; issues recalls for
unsafe products
Deregulating Industries
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_________________________ – reduces or removes government control of business
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Businesses and some economists argued that regulations were __________________ profits,
and they lobbied for reduced regulation