Market Structure Summary TEST REVIEW

<============================================  Perfect Competition Monopoly Oligopoly Monopolistic Competition How close is the U.S. to Adam Smith’s World? Pure Free Market Lowest price Highest quantity No Competition highest price lowest quantity How competitive is the U.S. Economy? –How close to “perfect competition” are we? When is a market no longer “self regulating”? Think market failures How can the Gov’t improve the market outcome? Can a company be too successful or too big?

Monopolistic Competition Many firms produce goods that can be substitutes –product differentiation Some characteristics of oligopoly & some closer to perfect competition. Examples: Restaurants, Haircuts, Auto Repair, Ice Cream stores

Characteristics Many Sellers Differentiated Product [still substitutes] Relatively Easy to enter/leave industry Reasonably complete information Some price control Monopolistic Competition Examples: Hair salons Pizza parlors Deli’s

Monopolistic Competition Result Firm can earn an economic profit only in short run Easy entry/exit forces economic profit to zero in long run –Profit attracts new suppliers => forces price down End Result: lower quantity & higher price vs. perfect competition –But a higher quantity & lower price vs. both Monopoly & Oligopoly

Tap water Electricity Monopoly Shoes Restaurants Monopolistic Competition Soft Drinks Automobiles Oligopoly Perfect Wheat Milk Competition Type of Products? Identical (homogenous) products Differentiated products One firm Few firms Many Firms Number of Firms Long Run Economic Profit Short Run Economic Profit YES Yes Structure Examples No Easy entry/exit causes new firms to enter driving profit to zero economic profit in L.R.

Practice Test