1. Competition and Monopolies

2.  Businesses are categorized by market structure, otherwise known as the amount of competition they face in the market.

3.  Large Market- numerous buyers and sellers  Similar Products- nearly identical  Easy Entry and Exit- sellers cannot prevent competition, initial cost of investment is small, and good or service is easy to produce/learn  Easily Obtainable Information  Independence- impossible for seelers to get together to control the price

4.  Determined by the forces of supply and demand

5.  With the internet, it is impossible for sellers to overcharge and expect to make a profit

6.  Three types of Imperfect Competition are:  Monopolistic Competition  Oligopoly  Monopoly

7.  Characteristics of Monopolistic Competition  Numerous sellers  Relatively easy entry  Differentiated products- each supplier sells a slightly different product to attract customers ▪ Sara’s scented candles; Flora’s floating candles; Tara’s tealight candles  Non-price competition- differentiation; advertising  Some control over price  Exs: sneakers; clothing; household items

8.  Characteristics of an oligopoly:  Several suppliers dominate the industry  Barriers to entry- capital costs are high  difficult to enter market  Identical of slightly different products  Non-price competition-advertising  consumer loyalty  Interdependence- any change by one firm will result in change by another firm  Exs: Automobile industry; airline industry; oil; soft drinks

9.  The most extreme form of imperfect competition is the monopoly. They can destroy a capitalist system, and are therefore strictly regulated.  Characteristics include:  Single seller  No substitute products  No entry into industry  Almost complete control over market price

10.  4 categories  Natural  Geographic  Technological  Government

11.  In the past it was thought to be more efficient, or natural, to have just one company provide a public good or service  government granted exclusive rights to natural monopolies- providers of such things as cable TV, bus service, and utility companies because their large size seemed to give them economies of scale  they could produce the largest amount for the lowest cost. Not so anymore.

12.  A grocery store in a remote village faces no competition because no one else wants to open a grocery store there  there is minimal potential for profit

13.  If you invent something, the government grants you a patent  you have the exclusive right to manufacture, rent, or sell that product for 20 years. The government does this so as to promote creativity by rewarding those who contribute to society.

14.  Similar to natural monopolies  The government maintains roads and bridges and pays for it with our tax money. They do not allow competition in this industry as they are responsible for the outcome.