Market Structures and Current Changes Unit 7 Chapter 7 (Economics Textbook) Chapter 26/ Section 3 (Civics Textbook) Market Structures and Current Changes

What is a market Structure? These are ways the economy of a country is run through businesses, government control, competition and prices. There are 4 specific market structures and more than 1 market structure can exist in a country. Perfect competition Monopolies Oligopolies Monopolistic Competition

Perfect Competition 4 conditions Many buyers and sellers participate & accept price. Sellers offer same/ similar product. Buyers & sellers are well informed about product. Sellers are able to easily & freely enter and exist market.

Perfect Competition Characteristics: Allows many businesses to produce the same or similar products Has no influence on price (equal), because produce at low levels. Consumer does not care where they get the commodity from. Buy based on best deal or lower price. Provides buyer with full information about a product & price.

Perfect Competition Characteristics: Allowed to enter business when there is money to be made, and then leave when money decreases. More business, brings more competition and therefore lower prices. Barriers of Entry do not exist because then it would cause and imperfect competition. Common barriers: skilled/ experienced personnel, technology & start-up cost

Perfect Competition Characteristics: Efficient Competition keeps prices & production low. Prices represent the opportunity cost of each product.

Monopoly Characteristics: Allows only 1 seller of a product with multiple buyers. Exist because of barriers of entry have formed Causes specific problems, therefore is illegal in the USA. Takes advantage of market Charges high prices

Monopoly Characteristics: Set prices as high as consumer will pay. Contribute to price discrimination, to better their sales & profits Do this through market power Found everywhere, except in perfect competitions markets. Use is legal, but businesses are just know to use to drive out competition.

How can Price discrimination properly work? Market Power No high competition, so prices can be controlled Distinct Customer Group Divide customers, by price sensitivity Difficult Resale More product is consumed, less likely to sell used.

How markets get around price discrimination? Offer discount to consumers who will not pay the high prices. Effect: Usually charge higher prices to people that need it the most. Offer manufacture rebates Offer Senior & student discounts Offer FREE Promotions

Monopoly Characteristics: Forms Economies of Scale Producers cost is low, as production increases. (causes low prices) If limited cost & production will increase. (Cause high prices) Rarely achieved because production becomes more efficient with increased production. Can form into a Natural Monopoly

Monopoly Characteristics: Natural Monopolies Works best with 1 large business providing all the output. 2 or more businesses lower prices & quantities, to where multiple businesses cannot last. Allowed so resources are not wasted Government controls prices & services Can be replaced by technology

Monopoly Characteristics: Government Monopoly Government regulates and creates barriers of entry. Controls Industrial Organizations Allows the businesses within the industry, to restrict the number of businesses in the market Causes high prices, because supply is limited Helps form technological monopolies

Monopoly Characteristics: Technological Monopolies Formed by patents Gain profit from research without competition Franchise Keeps small markets under control License

Monopolistic Competition 4 Conditions Many businesses, with easy start-up cost Few barriers of entry Similar products or no patents Many competitors Slight control over price Most control is in the hands of the consumer Differentiation Products Control over price is based on quality of product vs. other products.

Monopolistic Competition Characteristics: Many Businesses sell similar products Similar to perfect competition, but substitutes are created in most everyday life goods & services Offer many varieties & therefore production cost are high and resources are not used efficiently.

Monopolistic Competition Characteristics: Nonprice Competition Physical Characteristics Location Service Level Advertising/ Image/ Status

Monopolistic Competition Characteristics: Price is high compared to perfect competition, but does not exceed monopolies. Keep where consumers will still pay & obtain substitutes Production & price stay fairly equal Profit is earned just enough to cover cost because of competition & substitutes.

Oligopoly Characteristics: Imperfect form of a monopoly, because it has a few businesses. Businesses have high prices and low production, because they work together as a team. Government licenses & patents, high start-up cost, nonprice competition & economies of scale will form barriers of entry

Oligopoly Characteristics: Factors are legal ways to cheat and control competition Try to undertake price leadership to set prices Sometimes end in price wars & then will form collusion Collusion form price fixing Illegal in USA Cartels Illegal in USA & usually do not last Only survive if agree on price & production for profits to be even Usually cheat & increase quota that lowers prices Collapse if 1 groups is left out.

Economic Markets in Transition Main reason why countries transfer to a mixed economy is because of it’s success & prosperity.

Economic Markets in Transition Problems with other economies Controlled by 1 group Mistakes are common Late arrival of supplies Too much/ little of goods produced Not delivered to correct locations Process complicated Limited access to goods because low levels of trade.

Economic Markets in Transition Current Problems facing transitions: Trade makes items cheaper & harder to compete with. Unemployment is high Getting used to/ forming stock markets, private ownership of factories, and letting supply/ demand determine price. High population rate (developing countries) above the GDP Land locked countries and no access to water trade routes. Lack of Natural Resources Problems left over from war Destroyed infrastructure, death, etc. Severe Debt Borrowed money to spur economic growth and now facing difficulty paying them off Corruption

Economic Markets in Transition Ways countries help countries in transition Globally. Some try to overcome on own & we respect wishes International Monetary Fund (IMF) Give advice & financial assistance (monetary/ fiscal policy) World Bank Gives loans & advice to countries trying to improve economy In total both organization have 127 billion in outstanding loans.