1. Market structures Econ chapter 7

2. vocab market structure: nature & degree of competition in an industry laissez-faire: no gov. interference in economy

3. 4 basic types Perfect competition Monopolistic competition Monopoly Oligopoly

4. 5 characteristics of perfect large # buyers & sellers identical products all buyers/sellers act independently buyers/sellers well-informed easy for buyers & sellers to enter, leave market

5. Monopolistic competition “next to perfect”; one difference products similar but not identical competitors use –product differentiation (real or imagined differences) –nonprice competition –price competition try to “monopolize” a small portion of the market operate in narrow price range

6. oligopoly Few large companies w/identical or differentiated products Very difficult for new producers to enter market One firm may take actions that will change output, sales, & prices in whole industry Examples: auto makers, steel makers, coke & pepsi

7. monopoly One seller 5 types (including perfect) 4 actually exist: natural, geographic, technological, gov.

8. Natural monopoly Single producer minimizes production costs Economies of scale: average cost of production falls as firm gets larger Think public utilities

9. Geographic monopoly Absence of other sellers in the area Think drugstore in a small town, single gas station in the middle of nowhere

10. Technological monopoly Ownership /control of a manufacturing method, process, scientific advance Think patent, copyright

11. Government monopoly Gov. owns & operates Products/services private industry cannot adequately provide

12. Profit maximization all try to produce exactly the quantity at which marginal cost =equals marginal revenue

13. Market structure characteristics (p.169 ) 7.2 # of firms in industry Influence over price Product differen- tiation Ad- vertising Entry into market examples Perfect competition manynonenonenoneeasy Perfect: none Near: truck farming Monopolistic competition manylimited Fair amount easy gas stations jeanscosmetics oligopolyfewsome Fair amount somedifficultautomobilesaluminum Pure monopolyoneextensivenonenone Almost im- possible Perfect: none Near: water

14. Market failures Productive resources don’t reach max potential for competitive free enterprise economy

15. Competitive free enterprise economy Adequate competition in all markets Buyers/sellers well-informed of conditions/opportunities Resources free to move from one industry to another Prices reasonably reflect cost of production

16. Market failure causes Inadequate competition Inadequate information Resource immobility External economies* (negative, positive) Public goods

17. Beta who?

18. Who remembers Sony Betamax? Original home video formatOriginal home video format Technologically superior to VHSTechnologically superior to VHS Was not aggressively marketed of advertised; Sony thought quality was enoughWas not aggressively marketed of advertised; Sony thought quality was enough Beta who? Beta who?

19. Government regulation (vs. monopolies; was not specific enough & was used against labor unions)Sherman Antitrust Act (vs. monopolies; was not specific enough & was used against labor unions) (Strengthened Sherman, was more specific, exempted labor unions, forbade price distcrimination)Clayton Antitrust Act (Strengthened Sherman, was more specific, exempted labor unions, forbade price distcrimination) regulates unfair competition in interstate trade)Federal Trade Commission ( regulates unfair competition in interstate trade) (no rebates/discounts to large buyerrs not available to all)Robinson-Patman Act (no rebates/discounts to large buyerrs not available to all)