Economics Chapter 7: Market Structures.

Name: Economics Chapter 7: Market Structures.
Uploaded: 2017-10-13T12:05:51+00:00
Duration: PTM11S12
Channel: Eleanore Harvey
Description: Economics Chapter 7: Market Structures.

Economics Chapter 7: Market Structures

Economics Chapter 7: Market Structures
1. Perfect Competition is when a large number of buyers and sellers exchange identical products under 5 conditions.

5 Conditions Characterize Perfect Competition A large number of buyers and sellers Buyers and sellers deal in identical products No need to advertise No need for brand names Each buyer and seller acts independently Buyers and sellers are reasonably well-informed about products and prices Buyers and sellers are free to enter into, conduct, or get out of business.

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 is the name given to a market structure that lacks one or more of the 5 conditions of perfect competition.

2. Monopolistic Competition is the market structure that has all the conditions of perfect competition except for identical products.

1st left hand page Question #1 What are some examples of how different jean companies differentiate their products?

Monopolistic competitors use Product Differentiation – real or imagined differences between competing products in the same industry.

Monopolistic competitors use Non-Price Competition – the use of advertising, giveaways, or other promotional campaigns to convince buyers that the product is somehow better than another brand – often takes the place of price competition.

1st left hand page Question #2 Name your favorite brands of the following items: Jeans, Shampoo, Perfume (Cologne for guys), Tennis Shoes, and Make-up (cars for guys). Explain why you like each of the brands over other products that are the same. Did advertisement of these products influence your choice? If so, how?

Monopolistic Competitors usually advertise or promote heavily. This is why they are able to charge more for “designer” jeans.

The Monopolistic Competitor can enter the market easily. If they can convince consumers their product is better, they can charge a higher price.

2nd left hand page Question #1 Find 2 advertisements in a newspaper or magazine of like items. Glue in notebook and List how the advertisements try to show their product is better than the other item.

3. Oligopoly is a market structure in which a few very large sellers dominate the industry.

The product of an Oligopoly may be differentiated as in the auto industry or standardized as in the steel industry.

Examples – Pepsi, Coke, McDonalds, Burger King, Jack-In-The-Box, and Wendy’s Because oligopolies are so large, whenever one firm acts, the other firms usually follow.

Oligopolists may all agree formally to set prices, called collusion, which is illegal (because it restricts trade).

2 Forms of Collusion price fixing – agreeing to charge same or similar prices for a product (which is often above market price). Dividing up the market for guaranteed sales.

Because Oligopolists tend to act together when it comes to changing prices, most firms tend to compete on a non-price basis by advertising or by enhancing their products with new or different features.

4. Monopoly – is a market structure with only one seller of a particular product.

4 Types of Monopolies Natural Monopoly is a market situation where the costs of production are minimized by having a single firm produce the product or provides a service because it minimizes the overall costs (public utilities).

Geographic Monopoly occurs when the location cannot support two or more such businesses (small town drug store).

Technological Monopoly occurs when a producer has the exclusive right through patents or copyrights to produce or sell a particular product (an artist’s work for his lifetime plus 50 years).

Government Monopoly occurs when the government provides products or services that private industry cannot adequately provide (uranium processing).

Market Failures occur when sizeable deviations from one or more of the conditions required for perfect competition take place.

5 Reason Markets Fail 1. Inadequate Competition Inefficient resource allocation – because no competition Higher prices and reduced output Economic and political power → ask for tax break and threaten to move if don’t get it. Not enough demand to have competition

2. Inadequate Information 3. Resource Immobility – this means that land, capital, labor, and entrepreneurs do not move to markets where returns are the highest. Instead they tend to stay put and sometimes remain unemployed.

4. Externalities – or unintended side effect that either benefits or harms a 3rd party not involved in the activity that caused it. (positive and negative externalities). Externalities are regarded as market failures because they are not reflected in the market prices of the activities that caused the side effects.

5. Public Goods – are products that are collectively consumed by everyone and whose use by one individual does not diminish the satisfaction or value available to others. (ex) national defense and public education. A market fails because it cannot withhold supply from those who refuse to pay.

Role of The Government Anti-trust laws prevent or break up monopolies, preventing market failures due to inadequate competition.

The Sherman Anti-Trust Act of 1890 was enacted to prohibit trusts, monopolies, and other arrangements that restrain competition. The Clayton Anti-Trust Act was passed in 1914 to outlaw price discrimination (the practice of charging customers different prices for the same product).

The Federal Trade Commission (1914) was empowered to issue cease and desist orders, requiring companies to stop unfair business practices. The Robinson-Patman Act of 1936 was passed to strengthen the price discrimination provisions of the Clayton Anti-Trust Act.

Government’s goal in regulating is to set the same level of price and service that would exist if a monopolistic business existed under competition.

Public Disclosure is used as a tool to promote competition. Any corporation that sells its stocks publicly is required to supply financial reports to both its investors and to the SEC (Securities Exchange Commission).

The purpose of public disclosure is to provide adequate information to prevent market failures.

Corporations, banks, and other lending institutions must disclose certain information. There are also “truth-in-advertising” laws that prevent sellers from making false claims about their products.

Modified Free Enterprise Government intervenes in the economy to encourage competition, prevent monopolies, regulate industry, and fulfill the need for public goods.

Today’s U.S. economy is a mixture of different market structures, different kinds of business organizations, and varying degrees of government regulation.

The End

Economics Chapter 7: Market Structures.

Similar presentations

Presentation on theme: "Economics Chapter 7: Market Structures."— Presentation transcript:

Similar presentations

About project

Feedback

Log in

Auth with social network:

Economics Chapter 7: Market Structures.

Similar presentations

Presentation on theme: "Economics Chapter 7: Market Structures."— Presentation transcript:

Similar presentations

About project

Feedback