Market Structures

Market Structures MOST COMPETITIVE LEAST COMPETITIVE Pure Monopolistic Oligopoly Monopoly Competition Competition

Perfect (Pure) Competition Monopolistic Competition Oligopoly Monopoly Number of Firms Variation in Products Control Over Prices Barriers to Entry Examples

Perfect (Pure) Competition Number of Firms Variation in Products Control Over Prices? Barriers to Entry Examples MANY Little to none, goods are practically identical None price takers, price set by market (no profits) Almost none Agriculture, shares of stock, Gold

Monopolistic Competition Number of Firms Variation in Products Control Over Prices Barriers to Entry Examples MANY Minor to significant ADVERTISING is KEY! Minimal, dep.on advertising No big profits in long run Very few Fast food, clothes, grocery stores, barber shops

High Oligopoly Number of Firms Variation in Products Control Over Prices Barriers to Entry Examples Varies, but only a FEW LARGE sellers Minor in most cases Some, interdependent with competition High Home improvement stores, music labels Soft Drinks, college book stores

ONE NONE TOTAL Monopoly Number of Firms Variation in Products Control Over Prices Barriers to Entry Examples ONE NONE TOTAL Extremely High Public Water, Small town stores, MARTA

ONE MANY MANY NONE Some TOTAL High Perfect (Pure) Competition Monopolistic Competition Oligopoly Monopoly Number of Firms Variation in Products Control Over Prices Barriers to Entry Examples Varies, but only a FEW LARGE sellers ONE MANY MANY Little to none Minor in most cases NONE Significant None, price takers Some Very little TOTAL Almost none Extremely High Very few High Fast food, clothes, grocery stores, barber shops Agriculture, shares of stock, Gold Public Water, Small town stores, MARTA Home improvement stores, Soft Drinks, college book stores

Performance Task Tie-In Part I Which type of market does your business face? Are there lots of similar companies? Will you need to advertise your differences? Will you have total control over prices or will you have to “play along” with the market? Is there anything (other than collecting resources) preventing you from getting into the market?

Business Organizations 3 basic business structures Sole Proprietorship – one person owns/manages Partnership – 2 or a small group Corporation – a group of shareholders Each has various costs and benefits All types must deal with 4 general issues Liability, life expectancy, financial options, and taxes

Sole Proprietorships Advantages Low start-up costs Keeps all profits Full control Can respond to market quickly Easy to discontinue Disadvantages 100% Owner liability Legal, debt, taxes, etc BIG DEAL!!!! Life expectancy of company Limited access to resources

Partnerships Advantages Low startup costs Take advantage of specialization Larger pool of capital Somewhat limited liability LLP vs. General partnership Disadvantages Potential for conflict Unlimited liability overall Split profits

Corporations Advantages Limited liability Much larger pool of capital Take advantage of specialization Prestige Disadvantages Difficulty of startup corporate charter, stocks Double taxation The corporation is a SEPARATE individual from the people who run it. Loss of control More regulation

What’s On the Test Supply/Demand Specialization/Voluntary Exchange Why do people trade? Why do we specialize? Circular Flow Which direction do the arrows flow? What are the components? Market Structures What are the characteristics of the 4? How does each structure affect prices/profits? Business Organizations Pros/Cons of each type of Organization Supply/Demand How are prices set in a market? Law of Supply/Law of Demand RIPEN/GRENT What happens to equilibrium price/quantity when supply/demand shift Price Floors/Ceilings Elasticity