Splash Screen

Chapter Menu Chapter Introduction Section 1:Section 1:Perfect Competition Section 2:Section 2:Monopoly, Oligopoly, Monopolistic Competition Section 3:Section 3:Government Policies Toward Completion Visual Summary

Chapter Intro 1 The profit motive acts as an incentive for people to produce and sell goods and services.

Chapter Intro 2 Think about the products that you buy most frequently. Are they produced by just one company, or do you have choices about where to buy the items? In this chapter, read to learn how competition—or the lack of it—determines the prices you pay.

Section 1-Main Idea Section Preview In this section, you will learn about perfect competition and how this market structure benefits consumers.

Section 1-Key Terms market structure perfect competition Content Vocabulary

A.A B.B Section 1-Polling Question Can you name some reasons that competition is important for consumers? A.Yes B.No

Section 1 Market Structure and Perfect Competition Market structure refers to the extent of competition within particular markets.

Section 1 Market Structure and Perfect Competition (cont.) Businesses are categorized by market structure or the amount of competition they face.market structure View: Comparing Market Structures

Section 1 –Perfect competition –Monopolistic competition –Oligopoly –Monopoly Market Structure and Perfect Competition (cont.) The four basic market structures in the American economy are:

Section 1 –A large market –A nearly identical product –Easy entry and exit to the market –Easily obtainable market information –Independence of sellers and buyers Market Structure and Perfect Competition (cont.) Five conditions must be met for perfect competition (pure) to take place:perfect competition

Section 1 True perfect competition is rarely seen. The ability of consumers to obtain information is key to sustaining competition. Market Structure and Perfect Competition (cont.)

A.A B.B C.C D.D Section 1 Under which type of market would the most competition exist? A.Monopoly B.Oligopoly C.Monopolistic competition D.Perfect Competition

Section 1 Agriculture as an Example Agriculture markets come close to a perfectly competitive market structure.

Section 1 Agriculture as an Example (cont.) No single wheat farmer has any great influence on wheat prices. The market price for wheat is determined by the interaction of supply and demand, and individual wheat farmers have to accept the market price. People’s demand for wheat is relatively inelastic. View: A Classic ExampleA Classic Example

Section 1 Supply is highly dependent on conditions over which farmers have little or no control. The intense competition in a perfectly competitive industry forces the price down to one that just covers the costs of production plus a small profit. All inputs are used in the most advantageous way possible allowing an efficient allocation of productive resources. Agriculture as an Example (cont.)

A.A B.B Section 1 The wheat market fulfills all five of the conditions needed to create perfect competition. A.True B.False

Section 2-Main Idea Section Preview In this section, you will learn about three types of imperfect market structures: monopoly, oligopoly, and monopolistic competition.

Section 2-Key Terms monopoly barriers to entry economies of scale patent copyright oligopoly product differentiation cartel monopolistic competitionmonopolistic competition Content Vocabulary

A.A B.B C.C Section 2-Polling Question Do you understand how a monopoly works? A.Yes B.Somewhat C.Not at all

Section 2 Monopoly A monopoly exists when a single seller controls the supply of a good or service and largely determines its price.

Section 2 Monopoly (cont.) The most extreme form of imperfect competition is a pure monopoly.monopoly In a pure monopoly, a single seller controls the supply of the good or service and thus determines its price. A monopolist can raise prices, but cannot charge outrageous prices. View: A Monopoly Market StructureA Monopoly Market Structure

Section 2 A monopoly is protected by barriers to entry.barriers to entry The cost of getting started (“excessive money capital costs”) can be a barrier. Monopoly (cont.)

Section 2 The four types of monopolies are: –Natural—the government grants exclusive rights to companies that provide things like utilities, bus service, and cable TV. Monopoly (cont.) The larger size of these gives them economies of scale. economies of scale

Section 2 –Geographic—the setting of this business is isolated and the potential for profits is small, so other businesses don’t enter the market. –Technological—if you invent something, you are capable of having this type of monopoly over your invention. Monopoly (cont.) Patent Copyright

Section 2 –Government—this monopoly is held by the government itself. Monopoly (cont.)

A.A B.B C.C D.D Section 2 The postal service would fall under which type of monopoly? A.Natural B.Geographic C.Technological D.Government

Section 2 Oligopoly An oligopoly exists when an industry is dominated by a few suppliers that exercise some control over price.

Section 2 Oligopoly (cont.) An oligopoly is an industry dominated by several suppliers who exercise some control over price.oligopoly Oligopolists engage in nonprice competition. The price you pay is based on product differentiation in addition to supply and demand.product differentiation View: An Oligopoly Market StructureAn Oligopoly Market Structure View: OligopoliesOligopolies

Section 2 Oligopoly (cont.) With so few firms in an oligopoly, whatever one does, the others will follow. If competing firms secretly agree to raise prices or to divide the market, they are performing an illegal act called collusion. One significant form of collusion is the cartel. cartel

A.A B.B C.C D.D Section 2 Which two aspects make oligopolies safer than monopolies? A.Stable prices and easy entry B.More variety and less advertising C.Stable prices and more variety D.Less advertising and stable prices

Section 2 Monopolistic Competition Monopolistic competition exists when a large number of sellers offer similar but slightly different products, and each firm has some control over price.

Section 2 Monopolistic Competition (cont.) The most common form of market structure in the U.S. is monopolistic competition.monopolistic competition The major difference between monopolistic competition and an oligopoly is in the number of sellers of a product. Competitive advertising is key in this type of market. View: Market Structure of Monopolistic CompetitionMarket Structure of Monopolistic Competition

A.A B.B C.C Section 2 Do you feel that buying a popular brand name guarantees quality? A.Definitely B.Somewhat C.Not really

Section 3-Main Idea Section Preview In this section, you will learn about steps the government has taken to regulate business practices.

Section 3-Key Terms interlocking directorate antitrust legislation merger conglomerate deregulation Content Vocabulary

A.A B.B C.C Section 3-Polling Question Do you feel that the government should intervene in issues concerning competition? A.Always B.Sometimes C.Never

Section 3 Antitrust Legislation and Mergers The goal of antitrust legislation is to encourage competition in the economy and to prevent unfair trade practices.

Section 3 Antitrust Legislation and Mergers (cont.) The practice of creating interlocking directorates was perfected by John D. Rockefeller at the end of the 19th century.interlocking directorates His monopoly over the oil business led Congress to pass the Sherman Antitrust Act in This law sought to protect trade and commerce against unlawful restraint and monopoly.

Section 3 The Sherman Antitrust Act was important antitrust legislation. antitrust legislation Antitrust Legislation and Mergers (cont.) The Clayton Act of 1914 sharpened the previous antitrust law, prohibiting or limiting a number of very specific business practices that lessened competition substantially.

Section 3 Most antitrust legislation deals with restricting the harmful effects of mergers.mergers Antitrust Legislation and Mergers (cont.) View: MergersMergers

Section 3 Three kinds of mergers exist: –Horizontal—corporations that merge are in the same business. –Vertical—corporations involved in a “chain” of supply merge. –Conglomerate—a large corporation merges with smaller corporations dealing in unrelated businesses.Conglomerate Antitrust Legislation and Mergers (cont.)

A.A B.B C.C Section 3 If an oil refinery merges with a chain of gas stations, which kind of merger would this be? A.Horizontal B.Vertical C.Conglomerate

Section 3 Government Regulation The aim of government regulatory agencies is to promote efficiency, competition, fairness, and safety.

Section 3 Government Regulation (cont.) The government uses direct regulation of business pricing and product quality in addition to antitrust laws to foster a competitive atmosphere. Many industries were deregulated in the 1980s and 1990s since government regulations had actually decreased the amount of competition in the economy.deregulated View: Federal Regulatory AgenciesFederal Regulatory Agencies

A.A B.B C.C Section 3 Do you think that deregulation is a good idea in general? A.Definitely B.Partially C.Not at all

VS 1 Of the four basic market structures, perfect competition and monopolies are rare, while monopolistic competition and oligopolies are much more common.

VS 2 The level of competitiveness in a particular market is determined by several factors.

VS 3 Government regulatory agencies seek to promote efficiency, competition, fairness, and safety.

Figure 1

Figure 2

Figure 3

Figure 4

Figure 5

Figure 6

Figure 7

Figure 8

Concept Trans 1

DFS Trans 1

DFS Trans 2

DFS Trans 3

Vocab1 market structure: the extent to which competition prevails in particular markets

Vocab2 perfect competition: market situation in which there are numerous buyers and sellers, and no single buyer or seller can affect price

Vocab3 monopoly: market situation in which a single supplier makes up an entire industry for a good or service with no close substitutes

Vocab4 barriers to entry: obstacles to competition that prevent others from entering a market

Vocab5 economies of scale: low production costs resulting from the large size of output

Vocab6 patent: exclusive right to make, use, or sell an invention for a specified number of years

Vocab7 copyright: exclusive right to sell, publish, or reproduce creative works for a specified number of years

Vocab8 oligopoly: industry dominated by a few suppliers who exercise some control over price

Vocab9 product differentiation: manufacturers’ use of minor differences in quality and features to try to differentiate between similar goods and services

Vocab10 cartel: arrangement among groups of industrial businesses to reduce international competition by controlling the price, production, and distribution of goods

Vocab11 monopolistic competition: market situation in which a large number of sellers offer similar but slightly different products and in which each has some control over price

Vocab12 interlocking directorate: a board of directors, the majority of whose members also serve as the board of directors of a competing corporation

Vocab13 antitrust legislation: federal and state laws passed to prevent new monopolies from forming and to break up those that already exist

Vocab14 merger: the legal combination of two or more companies that become one corporation

Vocab15 conglomerate: large corporation made up of smaller corporations dealing in unrelated businesses

Vocab16 deregulation: reduction of government regulation and control over business activity