Economics April 22, 2014.  Businesses are categorized by market structure– the amount of competition they face.  The four basic market structures in.

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Presentation transcript:

Economics April 22, 2014

 Businesses are categorized by market structure– the amount of competition they face.  The four basic market structures in the US are: perfect competition, monopolistic competition, oligopoly and monopoly.

 All businesses engage in some form of competition as long as there are other sellers of the same product.  When there are so many sellers that an individual seller only accounts for a small part of the total market- you have perfect competition.

 Five conditions of perfect competition:  1. A Large Market- numerous buyers and sellers must exist.  2. A Similar Product- the good or service being sold must be nearly identical  3. Easy Entry and Exit- sellers already in the market cannot prevent competition or entrance into the industry.  4. Easily Obtainable Information- information about prices, quality and sources is easy for the buyer and seller to obtain.  5. Independence- the possibility of buyers and sellers working together is almost impossible.

 When the five conditions are met; supply and demand will determine the price of the product.  Single sellers or buyers will not determine the price.  Perfect competition requires a large number of suppliers of a single product and a large number of informed buyers who know what the market price should be.  The market price is the equilibrium price.

 Perfect competition is rarely seen in the real world.  Information about the lowest prices is easily accessible today.

 The agricultural market is the closest we have to perfect competition in the United States.  Individual farmers have little control over prices. The price is set by the market.  Farmers have to charge the market price or will not be in business.  Demand for wheat is inelastic. There are only so many things that wheat can be used for.  Supply is determined by many factors out of the control of the farmer.