1. Perfect Competition
In this lesson, students will identify characteristics of perfectly competitive markets.
Students will be able to identify and/or define the following terms:
Perfect Competition
Commodities
Barriers to Entry
E. Napp

2. ESSENTIAL QUESTION
How does competition exert influence over an economy?
E. Napp

3. Standards
Content Standard 4: The student will evaluate how changes in the level of competition in different markets affect prices.
1. Explain how competition impacts the free market including the concepts that competition among sellers lowers costs and prices while encouraging increased production and competition among buyers increases prices and the allocation of goods and services to consumers willing and able to pay higher prices.
2. Explain how people’s own self-interest, incentives and disincentives influence market decisions.
E. Napp

4. A market is any venue where buyers and sellers meet.
E. Napp

5. In a perfectly competitive market, a large
number of firms produce the same
product.
E. Napp

6. Perfect Competition
A perfectly competitive market has four conditions:
There are many buyers and sellers.
Sellers offer identical products.
Buyers and sellers are well-informed about their products.
Sellers are able to enter and exit the market freely.
E. Napp

7. Markets for fruits and vegetables are
usually perfectly competitive markets.
E. Napp

8. Commodities
Commodities are generally sold in perfectly competitive markets.
A commodity is a product that is the same no matter who produces it.
Milk, petroleum, and apples are examples of commodities.
E. Napp

9. Milk is milk. It is exactly the same regardless of who sells it.
E. Napp

10. Barrier to Entry
A barrier to entry is any condition that makes it difficult to enter a market.
High start-up costs are barriers to entry.
A great degree of technical knowledge can also be a barrier to entry.
E. Napp

11. If opening a new business requires
hundreds of thousands of dollars, that
high start-up cost is a barrier to entry.
E. Napp

12. Needing a tremendous amount of technical
knowledge is another example of a barrier
to entry.
E. Napp

13. Growing corn doesn’t require a tremendous
amount of money or knowledge.
E. Napp

14. Opening a commercial airline industry
requires a tremendous amount of capital.
E. Napp

15. Few markets are perfectly competitive. Products must be identical in a
perfectly competitive market.
E. Napp

16. Monopoly
In this lesson, students will be able to identify characteristics of a monopoly.
Students will be able to identify and/or define the following terms:
Monopoly
Natural Monopoly
Patent
E. Napp

17. A monopoly is a market dominated
by a single seller.
E. Napp

18. Monopoly A monopoly is a market dominated by a single seller.
In general, monopolies are illegal.
Monopolies lead to higher prices, inferior quality of products, and reduced supply.
E. Napp

19. Monopolies can lead to higher prices.
Monopolies do not benefit consumers.
E. Napp

20. Antitrust Laws
The government generally prevents monopolies from forming or breaks up existing monopolies.
Antitrust laws are laws that prevent the formation and continuation of monopolies.
The government recognizes that monopolies do not benefit consumers.
E. Napp

21. The government carefully watches
market activity and prevents the formation
of most monopolies.
E. Napp

22. Natural Monopolies
However, the government does allow the formation of some monopolies.
A natural monopoly occurs when a market runs most efficiently with one firm supplying all of the output.
An example of a natural monopoly is public water.
E. Napp

23. Rather than building an overlapping
network of pipes, one company serves
customers best.
E. Napp

24. Patents A patent also provides a supplier with monopoly power.
A patent is a license given to the inventor of a product to be the sole supplier of the product for a number of years.
A patent is an incentive for invention.
E. Napp

25. Nextel had a patent for a number of
years on one of its phone features.
E. Napp

26. The Market Spectrum
Perfect competition is vastly different than a monopoly.
In perfect competition, many sellers sell identical products.
In a monopoly, a single seller is the sole supplier.
E. Napp

27. The old monopolies have been broken up.
E. Napp

28. The phone company was once a natural monopoly. The government
has since deregulated it.
E. Napp

29. The market for jeans is an example of monopolistic competition.
E. Napp

30. Monopolistic Competition
Monopolistic competition is a market structure in which many companies sell similar but not identical products.
Monopolistically competitive firms sell products that are similar enough to be substituted.
Levi jeans can easily be substituted for Lee jeans.
E. Napp

31. substituted for the other
One of these brands
could easily be
substituted for the other
brand.
E. Napp

32. Differentiation
Differentiation occurs when a good is produced slightly differently from another good.
In monopolistic competition, differentiation is critical.
Products are similar but not identical. The not identical part allows for a slightly higher price but just slightly higher.
E. Napp

33. Nonprice competition is using something
other than price to attract customers.
Convenience is an example.
E. Napp

34. Nonprice Competition
Nonprice competition is using something other than price to attract customers.
Style, location, and service are examples of nonprice competition.
Nonprice competition can help businesses attract customers.
E. Napp

35. Some markets are oligopolies. An oligopoly is a market dominated by
a few sellers.
E. Napp

36. Oligopoly
An oligopoly is a market in which a few large firms dominate a market.
Usually, the four largest firms produce at least 70 to 80 percent of the market’s output.
The government closely monitors oligopolies.
E. Napp

37. Barriers to entry can lead to oligopolies.
High start-up costs can lead to oligopolies.
E. Napp

38. The government closely monitors oligopolies because a market dominated
by a few sellers could
act like a monopoly!
E. Napp

39. The Four Different Market Structures
Perfect
Competition
Monopolistic
Competition
Oligopoly
Monopoly
The Four Different Market Structures
E. Napp

40. It is important to remember that competition benefits consumers.
E. Napp