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Chapter Menu Chapter Introduction Section 1:Section 1:Competition and Market Structures Section 2:Section 2:Market Failures Section 3:Section 3:The Role of Government Visual Summary

Section 1-Preview Section Preview In this section, you will learn that market structures include perfect competition, monopolistic competition, oligopoly, and monopoly. Section Objectives: Students will be able to: Identify and describe the 4 market structures. List and describe the 4 different types of monopolies. Describe 1 advantage and 1 disadvantage for each monopoly.

Chapter Intro 1 A developer has acquired the large piece of vacant land across the street from your house and plans to build a large shopping mall on the property. How might you benefit from the mall? How might it negatively impact your life?

Section 1 Competition and Market Structures In 1776, the average factory was small and businesses were competitive. Laissez-faire was the economic philosophy. Laissez-faire The supply side of the market today has many firms of different sizes producing slightly different products. These conditions help determine market structure.market structure

Section 1 Economists group businesses into four market structures. Perfect Competition Monopolistic Competition Oligopolies Monopolies Competition and Market Structures (cont.)

Section 1 Perfect Competition Perfect competition is an ideal market situation used to evaluate other market structures.

Section 1 Perfect competition—a theoretical ideal used to evaluate other market structuresPerfect competition Perfect Competition (cont.) Perfect Competition and Profit Maximization

Section 1 Perfect competition has five necessary conditions: Perfect Competition (cont.) 1.There is a large number of buyers and sellers. 2.Buyers and sellers deal in identical products. 3.Each buyer and seller acts independently. 4.Buyers and sellers are well informed about prices and products. 5.Buyers and sellers are free to enter, conduct, and shut down.

Section 1 Market supply and demand set the product’s equilibrium price. Few perfectly competitive markets exist. Perfect Competition (cont.)

Section 1 Imperfect competition results inImperfect competition –Less competition –Higher prices for consumers –Fewer products offered Perfect Competition (cont.)

Section 1 Monopolistic Competition Monopolistic competition shares all the conditions of perfect competition except the same goods or services.

Section 1 Under monopolistic competition, products are similar.monopolistic competition Monopolistic—seller’s ability to raise the price within a narrow range Competitive—If sellers raise or lower the price enough, customers will ignore minor differences and change brands. Monopolistic Competition (cont.)

Section 1 Monopolistic competition is characterized by product differentiation.product differentiation This is done through nonprice competition.nonprice competition Monopolistic Competition (cont.)

A.A B.B C.C Section 1 Are designer labels really better than store brand names when it comes to shoes, clothing, or makeup? A.Absolutely B.Sometimes C.Never

Section 1 Oligopoly Oligopoly describes a market in which a few sellers dominate an industry.

Section 1 Oligopoly products may have distinct features like makes and models in the auto industry; or products that can be standardized as in the steel industry.Oligopoly Oligopoly (cont.)

Section 1 Because oligopolies are so large, when one firm lowers its price or introduces a new product, other firms follow. This interdependent behavior takes the form of collusion.collusion Oligopoly (cont.) –Price-fixingPrice-fixing –Collusion restrains trade and is against the law.

Section 1 Monopoly A monopoly is a market with only one seller for a particular product.

Section 1 Monopoly is at the opposite end of the spectrum from perfect competition.Monopoly Monopoly (cont.) Few real monopolies exist today. –Americans dislike them. –New technologies compete with existing monopolies. Characteristics of Market Structures Pg. 175

Section 1 Types of monopolies Monopoly (cont.) –Natural monopolyNatural monopoly Government gives a public utility a franchise. Economies of scale

Section 1 Types of monopolies Monopoly (cont.) –Geographic monopolyGeographic monopoly –Technological monopoly— Government grants a patent or copyright.Technological monopoly –Government monopolyGovernment monopoly Profiles in Economics: Bill Gates

Section 1-Preview Section Objectives: Students will be able to: Identify and describe the 4 market structures. List and describe the 4 different types of monopolies. Describe 1 advantage and 1 disadvantage for each monopoly.

Section 2-Preview Section Preview In this section, you will find out that inadequate competition, inadequate information, immobile resources, public goods, and externalities can lead to market failures. Section Objectives: Students will be able to: List and identify the different types of market failures. Identify ways to deal with positive externalities. Identify ways to deal with negative externalities.

Section 2 Types of Market Failures Markets can sometimes fail because of inadequate competition, inadequate information, resource immobility, public goods, and externalities.

Section 2 Types of Market Failures (cont.) Five main causes of market failuremarket failure –Inadequate competition –Inadequate information –Resource immobility –Public goodsPublic goods

Section 2 Types of Market Failures (cont.) Five main causes of market failuremarket failure –ExternalitiesExternalities Negative externality Positive externality

Section 2 Dealing with Externalities Externalities indicate a market failure and can be corrected with government action.

Section 2 Externalities distort decisions made by consumers and producers, resulting in a less efficient economy. Every activity generates an externality at some level. Dealing with Externalities (cont.)

Section 2 Correcting negative externalities Dealing with Externalities (cont.) –Government taxes the products/behavior of the firm rather than banning them. –Firms have less incentive because the tax increases their product’s price. –Higher prices reduce quantity demanded. –People affected may face fewer problems.

Section 2 Correcting positive externalities Dealing with Externalities (cont.) –Subsidizing local programs, such as education, helps communities. –Programs are expensive and many are left underfunded.

A.A B.B C.C Section 2 Do you think a fully paid educational program for all citizens, from preschool through college, would make communities substantially better than they are? Why?

Section 2-Preview Section Objectives: Students will be able to: List and identify the different types of market failures. Identify ways to deal with positive externalities. Identify ways to deal with negative externalities.

Section 3-Preview Section Preview In this section, you will learn that one of the economic functions of government in a market economy is to maintain competition. Section Objectives: Students will be able to: Describe the ways the government uses to maintain competition. Identify government’s role in improving economic efficiency. Describe the Modified Free Enterprise Economy.

Section 3 Maintain Competition The government exercises its power to maintain competition within markets.

Section 3 Maintain Competition (cont.) Two ways government maintains competitive markets –Prohibiting market structures that are not competitive –Regulating markets where full competition is not possible

Section 3 Maintain Competition (cont.) Laws have historically been passed to restrict monopolies and trusts.trusts –Congress passed the Sherman Antitrust Act in This outlawed contracts that restricted/impeded trade and stopped the growth of monopolies. –Clayton Antitrust Act in 1914 outlawed price discrimination. price discrimination Anti-Monopoly Legislation

Section 3 Maintain Competition (cont.) Laws have historically been passed to restrict monopolies and trusts.trusts –Federal Trade Commission Act gave authority to issue a cease and desist order.cease and desist order Anti-Monopoly Legislation

Section 3 Maintain Competition (cont.) Natural monopolies are not necessarily bad and therefore should not be broken up. Many monopolies are regulated by government agencies. Federal Regulatory Agencies

Section 3 Improve Economic Efficiency Providing public goods and promoting transparency can improve economic efficiency.

Section 3 Efficient and competitive markets need adequate and transparent information. Therefore, public disclosure is paramount to economic efficiency.public disclosure Improve Economic Efficiency (cont.)

Section 3 Truth-in-advertising laws Consumer lending laws Securities and Exchange Commission Government documents, studies, and reports are available in public libraries. Improve Economic Efficiency (cont.)

Section 3 Government provides many public goods that make us better off but would not otherwise be provided by firms in a free economy. Public goods, like decent roads and highways, make the economy more productive. Firms need an educated workforce. Improve Economic Efficiency (cont.)

Section 3 Modified Free Enterprise Because the government is involved in certain aspects of our economy, it is a modified version of free enterprise.

Section 3 A modified free enterprise economy is a result of the U.S. economy evolving over time. Government has a responsibility to protect the rights of workers and protect consumers from false claims, harmful products, and price gouging. Modified Free Enterprise (cont.)

U.S. Justice Department sues Microsoft Corporation

Section 3 Now government concerns are focused on promoting economic efficiency by supplying public goods and promoting transparency. Modified Free Enterprise (cont.)

Section 3-Preview Section Objectives: Students will be able to: Describe the ways the government uses to maintain competition. Identify government’s role in improving economic efficiency. Describe the Modified Free Enterprise Economy.

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Concepts Trans 2

Vocab1 laissez-faire philosophy that government should not interfere with business activities

Vocab2 market structure nature and degree of competition among firms in the same industry

Vocab3 perfect competition market structure with many well- informed and independent buyers and sellers who exchange identical products

Vocab4 imperfect competition market structure that does not meet all conditions of perfect competition

Vocab5 monopolistic competition market structure that meets all conditions of perfect competition except identical products

Vocab6 product differentiation real or imagined differences between competing products in the same industry

Vocab7 nonprice competition sales strategy focusing on a product’s appearance, quality, or design rather than its price

Vocab8 oligopoly market structure in which a few large sellers dominate the industry

Vocab9 collusion agreement, usually illegal, among producers to fix prices, limit output, or divide markets

Vocab10 price-fixing agreement, usually illegal, by firms to charge the same price for a product

Vocab11 monopoly market structure with a single seller of a particular product

Vocab12 natural monopoly market structure where average costs of production are lowest when a single firm exists

Vocab13 economies of scale situation in which the average cost of production falls as a firm gets larger

Vocab14 geographic monopoly market structure in which one firm has a monopoly in a geographic area

Vocab15 technological monopoly monopoly based on a firm’s ownership or control of a production method, process, or other scientific advance

Vocab16 government monopoly a monopoly owned and operated by the government

Vocab17 theoretically existing only in theory; not practical

Vocab18 equate to represent as equal or equivalent

Vocab19 market failure condition that causes a competitive market to fail

Vocab20 public goods goods or services whose benefits are available to everyone and are paid for collectively

Vocab21 externality economic side effect that affects an uninvolved third party

Vocab22 negative externality harmful side effect that affects an uninvolved third party

Vocab23 positive externality beneficial side effect that affects an uninvolved third party

Vocab24 collude to act together in secret, especially with harmful or illegal intent

Vocab25 sustain to support or hold up

Vocab26 trust illegal combination of corporations or companies organized to hinder competition

Vocab27 price discrimination practice of selling the same product at different prices to different buyers

Vocab28 cease and desist order ruling requiring a company to stop an unfair business practice that reduces or limits competition

Vocab29 public disclosure requirement that a business reveal information about its products or its operations to the public

Vocab30 restrained limited the activity or growth of

Vocab31 intervention involvement in a situation to alter the outcome

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