CHAPTER 7 COMPETITION, MARKET STRUCTURES AND THE ROLE OF THE GOVERNMENT

COMPETITION AND MARKET STRUCTURES Laissez-Faire, Industrial Revolution and Post Civil War MARKET STRUCTURES 1. PURE (PERFECT) COMPETITION- This is an exception not the rule in our system. *Characteristics: –A. Large number of buyers and sellers. –B. The products produced are nearly identical. –C. Each buyer and seller acts independently. –D. Buyers and sellers are well-informed. –E. Buyers and sellers freely enter, interact and leave the market. *Profit Maximization: Very little, no one farmer has much impact on price A. Prices set entirely by supply and demand. 2. MONOPOLISTIC COMPETITION- Large dose of competition and a small dose of monopoly powers *Characteristics: A. Slight Product Differentiation. B. Non-Price Competition. C. Number of suppliers (10-50 companies dominate the market)

PROFIT MAXIMIZATION: Local (store level) and national ads 3. OLIGOPOLY Large dose of monopoly power, small dose of competition *Characteristics A. Number of companies. (2-12 dominate the market) B. Products can be differentiated or standardized. C. Companies can effect the price. There is a tendency for collusion and cartels. D. Sometimes practice price leadership. E.Non-price Competition F.High barriers to entry. *PROFIT MAXIMIZATION: National advertising 4. MONOPOLIES This is an exception not the rule in our economic system *Characteristic A.One seller completely dominates the market. B. There are no cheap substitutes for the product. C. The seller control the price. (If permitted it is heavily regulated by the state and local government—utility companies)

America traditionally has had a distrust and dislike for monopolies because: –1. prices too high. –2. quality goes down, no incentive to make it better. –3. reduces worker choices. –4. low paying jobs. –5. monopolies have unusually high political clout. Actions taken to limit monopolies: –Find available substitutes. –Create new technology. –Laws: Sherman Anti-Trust Act, Clayton Act, Federal Trade Act, Types of Monopolies 1. Natural Monopoly 2. Geographic Monopoly 3. Technological Monopoly 4. Government Monopoly

MARKET FAILURES: When does capitalism fail? Four situations when markets fail: EXTERNALITIES Externalities are the economic side effects that either help or harm a third party. A. Negative Externality- this is a harmful side effect. Govt. building a “connector” highway from 81-Clemson Blvd. –GOAL: To benefit business and alleviate traffic.. – but some people will be moved from their homes, others will have their lawns effected, there will be increased traffic near their homes, and property values will drop. This is the negative externality Positive-new road gives access Negative-congestion, pollution

B. Positive Externality An economic activity that benefits a third party. Businesses on Clemson Blvd. and on 81 may benefit from the building of a “connector” highway. Could result in added employment. C. Externalities as Market Failures: They are classified as market failures because the costs and benefits are not reflected in the market prices paid by the buyers and sellers of the original product. Often they are market failures because of the demand side. Not meant for everyone but a particular group. Public goods-( another market failure) are government “products” collectively consumed by the general public. Examples: highways, national defense, flood control, police and fire protection, schools, etc. They are market failures because these things cannot be withheld if an individual doesn’t pay for them.

THE ROLE OF THE GOVERNMENT: Government Regulation Public disclosure

How to balance a checkbook: CHECKBOOK REGISTER CHECK #DATEDESCRIPTIONWITHDRAWALDEPOSITBALANCE Deposit 2/01INITIAL DEP /02BELK56.19 ATM2/05ATM WITH /05EL PATRONS19.01 Deposit2/10PAYCHECK95.00 Debit card2/21ZAXBYS8.95 Debit card2/25BI LO /28CAR PAYMT Deposit 3/2PAYCHECK /2 ACCOUNT FEES 7.00 CHECKING STATEMENT Feb1—Feb. 28 SUMMARY BEGINNING BALANCE, Feb CHECKS/DEBITS PAID DEPOSITS ATM FEES CHECKING ACCOUNT FEE ENDING BALANCE, FEB

CHECKBOOK BALANCING FORM 1. ENDING BALANCE ON BANK STATEMENT: $ 2. LIST OF DEPOSITS NOT SHOWN. ADD TO LINE 1. - TOTAL: $_ 3. LIST OUTSTANDING CHECKS, AND OTHER WITHDRAWALS NOT SHOWN ON BANK STATEMENT. TOTAL 4. AFTER YOU FIGURE IN ALL THE ADDITIONS AND SUBTRACTIONS, THIS AMOUNT SHOULD MATCH CURRENT BALANCE IN YOUR CHECKBOOK =_________