1. Market Structures

2. Laissez-Faire
Philosophy that government should not interfere with business activity When the market was comprised of small businesses and small factories this was the dominating philosophy

3. 4 Competition Structures

4. Perfect Competition
Large number of buyers and sellers Buyers and sellers deal in identical products Each buyer and seller acts independently Buyers and sellers are well informed Buyers and sellers are free to enter, conduct, and shut down business

5. When there is Imperfect Competition this results in Less Competition
Higher Prices
Fewer Products Offered

6. Monopolistic Competition
Products are similar, but not identical Sellers have ability to raise the price within a narrow range If sellers raise price too much, buyers will ignore minor differences and change brands

7. Oligopoly
Few sellers dominate an industry
When one firm lowers its price or introduces a new product, other firms follow
Collusion can happen
Price-Fixing

8. Monopoly
Only one seller for a particular product
Natural Monopoly
Public Utilities
Geographic Monopoly
Technological Monopoly
Government Monopoly

9. Market Failures
5 Main Causes of Market Failures
Inadequate Competition
Inadequate Information
Resource Immobility
Public Goods
Externalities

10. Dealing with Externalities
Correcting negative Externalities
Government adds tax onto products
Firms have less incentive because tax increases product’s price
Higher prices reduce quantity demanded
People affected may face fewer problems

11. Role of the Government

12. Maintain Competition
Prohibiting Market Structures that are not competitive
Regulating markets where full competition is not possible
Laws have been passed to restrict monopolies and trusts
Sherman Antitrust Act (1890)
Clayton Antitrust Act (1914)

13. Maintain Competition Federal Trade Commission Act
Authority to issue a cease and desist order
Natural monopolies are not necessarily bad and are left alone
Many monopolies are regulated by government agencies

15. Improve Economic Efficiency
Efficient and competitive markets need adequate and transparent information
Public Disclosure is a key part of economic efficiency
Truth-in-Advertising laws
Consumer lending laws
Securities and Exchange Commission
Government documents, studies and reports

16. Improve Economic Efficiency
Government Provides public goods because a free economy does not promote them Public goods, like decent roads and highways, make the economy more productive Firms need an educated workforce

17. Modified Free Enterprise
US Economy has evolved over time Government has a responsibility to protect the rights of workers and protect consumers from false claims, harmful products and price gouging Government concerns are focused on promoting economic efficiency by supplying public goods and promoting transparency