EPF-3F Unit 3 (Part Two) I can describe the effects of competition on producers, sellers, and consumers Target F

From Perfect Competition to Monopoly Perfect Competition Monopolistic Competition Oligopoly Monopoly

Characteristics of Perfect Competition a large number of competitors, such that no one firm can influence the price the good a firm sells is indistinguishable from the ones its competitors sell firms have good sales and cost forecasts there is no legal or economic barrier to its entry into or exit from the market

Monopoly The sole seller of a good or service. Some monopolies are generated because of legal rights (patents and copyrights). Some monopolies are utilities (gas, water, electricity etc.) that result from high fixed costs.

Monopolistic Competition Monopolistic Competition: a situation in a market where there are many firms producing similar but not identical goods. Example : the fast-food industry. McDonald’s has a monopoly on the “Happy Meal” but has much competition in the market to feed kids burgers and fries.

Oligopoly Oligopoly: a situation in a market where there are very few discernible competitors Examples – Satellite TV service (Direct TV, Comcast, Dish Network, Fios) – Airlines (American, Delta etc.)

Which Model Fits Reality? Perfect competition is rare outside agriculture though it fits some labor markets. Monopolies are common in utilities Major branded companies are typically either in oligopolistic or monopolistically competitive industries.

Examples of Different Market Forms Perfect Competition Monopolistic Competition OligopolyMonopoly 1)Agriculture 2)Lumber 1)Fast Food 2)Airlines 1)Cars and Trucks 2)Soft Drinks 1)Windows Operating system 2)Local Residential Utilities Make this chart in your notebook

Distinguishing Characteristics Between Market Forms Perfect Competition Monopolistic Competition OligopolyMonopoly Number of Firms Many-often thousands or even millions SeveralFewOne Barriers to Entry NoneFewSubstantialInsurmountable Product Homo/Hetero -geneity HomogeneousHeterogeneous N/A Make this chart in your notebook

How does competition among sellers affect consumer prices and consumer choices? How does competition among consumers affect prices? Competition among producers and sellers leads to more choices, improved quality, and lower prices as producers seek to attract customers away from other businesses. Competition among consumers leads to higher prices and allocates goods to those willing to pay the most (e.g., several buyers bidding at an auction push the price up).

Competition for producers & consumers Example of Consumer competition