1 © ©1999 South-Western College Publishing PowerPoint Slides prepared by Ken Long Principles of Economics 2nd edition by Fred M Gottheil

2 Chapter 10 Identifying Markets and Market Structures 5/24/2015 © ©1999 South-Western College Publishing

3 What is a Relevant Market? The set of goods whose cross elasticities with others in the set are relatively high and whose cross elasticities with goods outside the set are relatively low © ©1999 South-Western College Publishing

4 What is an example of a Relevant Market? In 1953 DuPont was ruled to be in the flexible packaging market and not exclusively in the cellophane market © ©1999 South-Western College Publishing

5 What determines if goods are in the same market? If their cross elasticity is 3 or greater they are considered to be in the same market © ©1999 South-Western College Publishing

6 What determines Market Structure? A set of market characteristics such as number of firms, ease of entry, and substitutability © ©1999 South-Western College Publishing

7 What is considered an Industry? A collection of firms producing the same good © ©1999 South-Western College Publishing

8 What are the four types of markets? Monopoly Oligopoly Monopolistic Competition Perfect Competition © ©1999 South-Western College Publishing

9 What is a Monopoly? A market structure with only one firm producing goods that have no substitutes and impossible barriers of entry into the market © ©1999 South-Western College Publishing

10 What is a Natural Monopoly? A market structure that cannot support more than one firm © ©1999 South-Western College Publishing

11 Why would a market structure not support more than one firm? The fixed cost in setting up production are so high the firm must have access to a large market to have a low average cost curve © ©1999 South-Western College Publishing

12 What are other reasons for Monopoly? The acquiring of an exclusive right to a nonreproducible resource Government protection Buy the competition © ©1999 South-Western College Publishing

13 What is an example of Government protection? The granting of a patent © ©1999 South-Western College Publishing

14 What is a Patent? A monopoly right to the use of a specific new technology or the production of a new good © ©1999 South-Western College Publishing

15 Why grant Patents? To encourage inventions and innovations © ©1999 South-Western College Publishing

16 16 © ©1999 South-Western College Publishing

17 What is Oligopoly? A market structure consisting of a few firms producing goods that are close substitutes and entry into the market is difficult © ©1999 South-Western College Publishing

18 What is meant by Mutual Interdependence in Oligopoly? When there are only a few firms, each firm will realize that their profits are strongly affected by the actions of the other firms.

19 What is Monopolistic Competition? A market structure consisting of many firms producing goods that are close substitutes and entry into the market is relatively easy © ©1999 South-Western College Publishing

20 What is Product Differentiation? The physical or perceived differences among goods in a market that makes them close substitutes © ©1999 South-Western College Publishing

21 How do Pepsi & Coca-Cola differentiate themselves? © ©1999 South-Western College Publishing

22 What is Brand Loyalty? The willingness of consumers to continue buying a good at a price higher than the price of its close substitutes © ©1999 South-Western College Publishing

23 What is Market Share? The percentage of total market sales produced by a firm in a market © ©1999 South-Western College Publishing

24 How do American Automobile Companies advertise on the net? © ©1999 South-Western College Publishing

25 What happens to the demand curve as more firms enter the industry? It becomes more elastic © ©1999 South-Western College Publishing

26 More Elastic More Elastic P Q 26 D2D2 More Inelastic D1D1

27 What happens when a firm effectively advertises? The demand curve becomes more inelastic © ©1999 South-Western College Publishing

28 What is Perfect Competition? A market structure consisting of a large number of firms producing goods that are perfect substitutes and entry into market is easy © ©1999 South-Western College Publishing

29 Can a Perfectly Competitive firm influence the market price? No! The firm is so small compared to the total market that it has no influence over the price © ©1999 South-Western College Publishing

30 Does the Perfectly Competitive Firm have to sell at the market price? It can sell all units it brings to market at the market price but will not sell one unit at a higher price © ©1999 South-Western College Publishing

31 What does the Demand Curve look like for a Perfectly Competitive Firm? It is perfectly horizontal at the market price © ©1999 South-Western College Publishing

32 The Firm’s Demand Curve in Perfect Competition Market quantity P S D Individual quantity P d 32

33 What is a Relevant Market? What is a Monopoly? What is a Natural Monopoly? What is a Patent? What is Monopolistic Competition? What is Oligopoly? What is Perfect Competition?