1. Chapter 7 Section 1

2. Perfect Competition Perfect competition exists with these 5 conditions: Perfect competition exists with these 5 conditions: Large number of buyers and sellers Large number of buyers and sellers Products should be identical Products should be identical

3. Buyers and sellers should act independently Buyers and sellers should act independently Buyers and sellers should be well-informed Buyers and sellers should be well-informed Buyers and sellers should be free to enter, conduct or get out of business. Buyers and sellers should be free to enter, conduct or get out of business.

4. Under perfect competition, supply and demand set the equilibrium price, and each firm sets a level of output that will maximize its profits at that price. Under perfect competition, supply and demand set the equilibrium price, and each firm sets a level of output that will maximize its profits at that price. Imperfect competition-the absence of one of the 5 conditions. Imperfect competition-the absence of one of the 5 conditions.

5. Monopolistic Competition MC meets all conditions of perfect competition except for identical products MC meets all conditions of perfect competition except for identical products MC use product differentiation-the real or imagined differences between competing products in the same industry. MC use product differentiation-the real or imagined differences between competing products in the same industry. MC use non-price competition- advertising, giveaways, or other promotions to differentiate their products from other products in the market. MC use non-price competition- advertising, giveaways, or other promotions to differentiate their products from other products in the market.

6. Oligopoly Oligopoly is a market structure in which a few very large sellers dominate the industry. Ex: Soda; cereal; cars Oligopoly is a market structure in which a few very large sellers dominate the industry. Ex: Soda; cereal; cars Oligopolists act interdependently by lowering prices soon after the first seller announces the cut, but typically they prefer non-price competition Oligopolists act interdependently by lowering prices soon after the first seller announces the cut, but typically they prefer non-price competition

7. Oligopolists may all agree formally to set prices, called collusion, which is illegal. Oligopolists may all agree formally to set prices, called collusion, which is illegal. Oligopolists can engage in price wars, pushing prices lower than the cost of production for a short time. Oligopolists can engage in price wars, pushing prices lower than the cost of production for a short time.

8. Monopoly Monopoly is a market structure with only one seller of a particular product Monopoly is a market structure with only one seller of a particular product US has few monopolies because we prefer competitive trade US has few monopolies because we prefer competitive trade

9. Types of Monopolies Natural-a single firm producing a product or service to minimize costs (public utilities) Natural-a single firm producing a product or service to minimize costs (public utilities) Geographic-occurs when a location cannot support more than 1 business (small town) Geographic-occurs when a location cannot support more than 1 business (small town) Technological-a producer has exclusive rights through patents or copyrights. Technological-a producer has exclusive rights through patents or copyrights. Government-occurs when the gov’t provides goods/services because the public cannot. (nuclear weapons) Government-occurs when the gov’t provides goods/services because the public cannot. (nuclear weapons)

10. The monopolist is a price maker. The monopolist is a price maker.