Market Structures & Types of Businesses

Essential Standards The student will analyze the four types of market structures in the US economy. The student will identify the basic characteristics of monopoly, oligopoly, monopolistic competition and pure competition.

Perfect Competition In a “perfect” or “purely” competitive market… Many thousands (or more) sellers compete to sell an identical product. The best example of a business that operates in such a market is… Farming— There are millions of tomato farmers around the world… Tomatoes tend to be IDENTICAL… And it is VERY EASY for new tomato growers to break into this business.

Monopolistic Competition In a monopolistically competitive market— There are MANY sellers competing to sell a SIMILAR product. A good example of a business that operates in this kind of market is… A fast food company. Buyers have dozens and dozens of options— And fast food is all very similar. In selling a SIMILAR product, such businesses must highlight SMALL DIFFERENCES— In a process called PRODUCT DIFFERENTIATION— In order to attract customers. They do this through… Advertising.

Oligopoly Oligopolies exist when there are only a few major competitors rule the market. There are several oligopolies based in Atlanta: DELTA… Coca Cola… UPS. Again, these products are VERY SIMILAR— The difference is that it is VERY HARD for a new business to break into an Oligopoly.

Firms that operate within perfectly competitive markets tend to have... iRespond Question Multiple Choice F 408F0B96-800F-5948-90C9-ABC9A094C12A A.) a large amount of control over the price of their product. B.) minimal control over the price of their product. C.) an employment structure that offers high salaries and good benefits. D.) very large advertising budgets. E.)

A.) perfect competition. In Douglasville, GA, three supermarkets control the entire market for groceries in that city. Which is the BEST description of the market structure for groceries in the city of Douglasville? iRespond Question Multiple Choice F 5D91E7AF-1F58-5F40-A5D8-93426CE8886D A.) perfect competition. B.) oligopolistic competition. C.) monopolistic competition. D.) E.)

Monopoly Monopolies exist when buyers have ONE OPTION. When I moved to Marietta in 2005, I had ONE OPTION for cable television: Comcast. However, I noticed that nearly every time I got a bill— The bill was SLIGHTLY HIGHER. This is what monopolies DO— Why? Because they CAN. Luckily, new technology has destroyed Comcast’s monopoly— And it now must offer better, cheaper service, or it will disappear. Monopoly

BUSINESS TYPES The student will explain the organization and role of business. The student will compare and contrast three forms of business organization—sole proprietorship, partnership, and corporation.

Sole Proprietorship This business is owned and operated by ONE PERSON… They are EASY to start up… And offer FULL CONTROL… However, sole proprietors are exposed to UNLIMITED LIABILITY… Meaning that if they borrow money for their business, and their business fails— They could lose EVERYTHING.

Partnerships A business owned and controlled by two or more people… Partnerships also offer easy start up and full control… They also offer SPECIALIZATION. However, they too are exposed to UNLIMITED LIABILITY— And they tend to break up over money disputes.

Corporations This type of business is owned by STOCKHOLDERS… If a Microsoft has a good year, the value of its stock… RISES… If they have a bad year, stock value… Falls. Corporate shareholders benefit from LIMITED LIABILITY… If their company goes bankrupt, they only lose the value of the stock they own.

Other Types of Organizations Franchises—businesses that are owned separately but have the same name. Example— McDonald’s. McDonald’s franchisees typically need to have $750,000 in the bank before being considered. They must submit to corporate control— And pay a monthly FEE— But they receive valuable advantages over independent restaurant owners. Non-profit organization—a business with goals other than profits. Example—the Red Cross.