1. Warm Up #83/03/2015  Explain the difference between the elasticity of demand and the elasticity of supply.  Draw a graph illustrating a price floor and explain it’s location on the graph. Who does a price floor benefit?  Draw a graph illustrating a price ceiling and explain it’s location on the graph. Who does a price ceiling benefit?

2. Warm Up  Pg 165 in your book: 19. A-C 21 23 A-D  If you finish work-on your vocab

3. Chill Soda  http://sharktankclips.com/season-1-episode-9- chill-soda/ http://sharktankclips.com/season-1-episode-9- chill-soda/  What are the biggest soft drink manufacturers?  What are the similarities and differences in these companies?  How is chill soda differentiated?  What problem did the sharks have with chill soda?  Would you invest in chill soda?

4. Market Structures All the companies that sell a product are called a market. All markets fit into one of the following market structures that reflect the nature and degree of competition in the market.  Perfect Competition  Monopolistic Competition  Oligopoly  Monopoly

5. Perfect Competition  Large number of buyers and sellers who exchange nearly identical products.  No single seller is large enough to single-handedly affect the price  Each buyer and seller acts independently.  Because no one firm can control a big chunk of the market, the equilibrium price is set in the market.  For this reason, they are called price takers – they have no control over the price.  If a perfectly competitive firm increases their price, they sell nothing.  If they decrease their price, they would be subtracting from their profit

6. Perfect Competition, Continued  Perfect competition is an ideal that is hard to achieve in real life.  The closest example to it is the market for local agricultural products – tomatoes, corn, eggs, apples, chickens

7. Monopolistic Competiton  Many competing producers – most businesses fit into this market.  Easy to enter market  Similar to perfect competition except products are different.  Limited control over prices  Product differentiation - If they can differentiate their product over the competitor in the mind of the consumer, they can charge more for the product  Advertising is essential - This explains why they spend so much advertising. (Branding)

8. Monopolistic Competition Examples

9. Oligopoly  There are a few large firms producing the product that control the market.  There is limited entry into an oligopoly because it is difficult and expensive to be widely recognized and accepted  Interdependent behavior - Each firms pricing decisions greatly affect others in the market.  Compete in price wars that drive weaker companies out of business. Often try to compete by enhancing product which puts the other firm at a disadvantage.  Oligopoly which firms cooperate to fix prices (called colluding) is called a cartel – example: OPEC

10. Oligopoly Examples AutomobilesAirlinesSoft Drinks http://www.thecoca- colacompany.com/brands/p roduct_list_a.html http://www.pepsico.com/ brands/Pepsi_Cola- Brands.html

11. Monopoly  Opposite of perfect competition.  One firm that has total control over price of good or service.  Known as a price maker  Could Take advantage of customers by raising costs and limiting supply – so the government prevents them.

12. Natural/Gov’t  Some monopolies are allowed to exist because their benefits outweigh their costs.  Natural monopolies – production costs are minimized by having a single firm produce a product  Example: public utilities – electric companies, phone companies – costs would increase for consumers if each firm had to put up electric or phone lines  Government Monopoly – owned and operated by the government  Example: Water

13. Technological Monopoly  Technological monopolies – based on ownership or control of a manufacturing method, process, or scientific advance.  The gov’t grants a patent – (exclusive rights) Otherwise, inventors would never make a profit and there would be no incentive to create new things.

14. Geographic Monopoly  Absence of other sellers in a geographic area  Example: The only gas station on a lonely interstate highway exit

15. Market Structures Perfect Competition Monopolistic Competition OligopolyMonopoly XXXXXXXX XXXXXXXX XXXXXXX XXXXXX X = the numbers of sellers