By: Serenity Hughes ECONOMICS 101

 The markets for many important products are dominated by a small number of very large firms. IMPERFECT COMPETITION

Objective- maximize their economic profits. Downward sloping curve MARKET POWER- firms that face a downward sloping demand curve. They have the ability to choose market prices instead of taking prices as given. IMPERFECTLY COMPETITIVE MARKETS WITH ONE OR ONLY A FEW SUPPLIERS

 An extreme situation of a single supplier. MONOPOLY

 1. The Ownership of a Key Resource  2. Government- Created Monopolies  3. Natural Monopolies BARRIERS TO ENTRY- PREVENT COMPETITORS FROM ENTERING THE MARKET

 Sherman Anti-Trust Act of an act passed to reduce the impact of monopoly.  Increase Market Competition WHAT CAN THEY DO???? -Large mergers and acquisitions must be reviewed by government regulators -Break up companies DEALING WITH MONOPOLIES

 By changing different prices- the marginal revenue curve would be identical to the market demand curve, and it would choose to supply a quantity equivalent to the competitive market outcome. Price discrimination (PD) further increases monopoly to capture a greater fraction of the benefits produced by each transaction. PD increases social welfare by moving the market closer to the socially efficient quantity. PRICE DISCRIMINATION- CHARGING DIFFERENT CUSTOMERS WITH DIFFERENT PRICES.

 Market with only a few sellers  Downward sloping demand curve Cartel- an agreement to cooperate and behave like a monopolist so total industry profits canbe maximized= illegal in US. OLIGOPOLY

 MC- combine aspects of the perfectly competitive and monopoly models.  Downward sloping demand curve due to the product of each firm being differentiated. IMPERFECT COMPETITION- MONOPOLISTIC COMPETITION

 Competitive markets will fail to produce socially desirable outcomes.  1. Externality- arises when the actions of one person affect the well being of someone else, but neither party pays nor is paid for these effects.  BENEFICIAL- POSITIVE EXTERNALITY  CAUSES HARM- NEGATIVE EXTERNALITY MARKET FAILURE

 There will be too little of an activity that generates positive externalities and too much of an activity that generates negative externalities. EXTERNALITIES CONT.