Chapter 7.1 Notes Market Structures

Perfect Competition There are many buyers and sellers of similar products Firms produce a standardized product of commodity. A commodity is a product that is identical across producers. Example – bushel of wheat, coffee beans, corn, etc. Firms can easily enter or leave the market Buyers are fully informed about the product

Perfect Competition (CONT.) A perfect competitive firm is so small relative to the size of the market that the firms choice about how to produce has no effect on the market price. d PRICE QUANTITY

Monopoly A monopoly is opposite of perfect competition From the Greek word meaning “one seller” Monopoly has extreme market power – the ability to raise its prices without losing all sales to competitors.

Monopoly (CONT.) Barriers to Entry – restrictions on the entry of new firms into a market. 1. Legal Restrictions - Sometimes entry to a market is illegal. Patents, regulations and the government sometimes provide legal protection against competition. Ex – bus and taxi services, electricity and cable t.v. 2. Economies of Scale – A single firm can sometimes satisfy the market demand at a lower cost per unit than could two or more smaller firms.

3. control of essential resources – sometimes a country or a firm controls a critical resource used for production. Ex – Alcoa controls most of the worlds supply of bauxite Ex – the worlds diamond trade has been controlled by De Beers Consolidated Mines

4 types of Monopolies Geographical monopoly – Your store is the only store producing a specific item in a small town. Technological monopoly – Your business has superior technological advances than your competition. Government monopoly – government control of business – ex – public education, electricity and cable companies Natural monopoly – when monopolies form naturally.

Oligopoly Two or three companies control the industry… Example – Cereal companies Kellogg, General Mills, Post (85%of all cereal is sold through these three)

Monopolistic Competition - Closest model to our capitalistic system These items sold are “like” or similar products Entry into the market is easy. Competition is fierce. Example – Verizon, AT&T, Sprint, T-Mobile, Boost, Metro PCS