Journal #36 Jelly Beans Supply and Demand 1.The price of sugar increases 2.The price of bubble gun, a close substitute for jelly beans, increases. 3.A machine is invented that makes jelly beans at a lower cost. Graph AGraph BGraph C

Market Structures

Perfect Competition Market structure that has a large number of well-informed independent buyers and sellers who exchange identical products. Example (few exist) –Local veggie farms (farmer’s market) Conditions –Large numbers of buyers and sellers –Product is identical –Everyone acts independently –Knowledgeable about product –Freedom to enter into, conduct, or get out of business

Perfect Competition Profit Maximization –MR = MC –Equilibrium price of market determines output of individual firm –“Price Taker” MC

Monopolistic Competition Has all conditions of perfect competition except for identical products Examples –Products are similar but not the same –Designer clothes, shoes, ect Biggest Characteristic –Product differentiation (real or perceived differences between competing products in the same industry) –Firms try to make consumers aware of differences – ADVERTISING Profit Maximization –No different from any other firm MC = MR

Oligopoly Few very large sellers that dominate the industry. Further from a perfect competition market than monopolistic competition Example –Car Industry –Soda Industry –Airline Industry Interdependent Behavior (when one firm acts the others follow) –Can lead to collusion (formal agreement to set specific prices or operate in a cooperative manner) Price-fixing –Cartels Profit Maximization –MC = MR

Monopoly Only one seller of a particular product Example (very few) –Most are “near- monopolies” Cable Company US Postal Service Telephone Company Types of Monopolies –Natural: cost of production are minimized by having a single firm produce the product –Geographic: based on an absence of other sellers in a certain area –Technological: control of a manufacturing method, process, or scientific advance –Government: owned and operated by govt.

Monopoly Profit Maximization –The companies equate MC to MR but… –“Price maker” –No equilibrium price because no competition which leads to a higher price

Market Failures This occurs when one condition necessary for competitive markets is missing Inadequate competition Inadequate Information Resource Immobility Public goods Externalities

Externality Economic side effect that affects an uninvolved 3 rd person Negative (harm, cost, or inconvenience suffered by the 3 rd party) Example –Pollution from a factory Positive (3 rd party experiences benefits) Example –Education

Project Project Worksheet and guidelines will be handed out there will be time to get into groups and discuss your choices for businesses. Do worksheets

Activity Fill In Number of firms in Industry Influence of price Product Differentiation AdvertisingEntry into Market Examples Perfect Competition Monopolistic Competition Oligopoly Pure Monopoly