UNIT III MARKET STRUCTURES AND BUSINESS ORGANIZATIONS CHAPTERS 7 & 8

PAGE 23 – PERFECT COMPETITION Task 1: Create a bubble map of the characteristics of perfect competition. Include a visual inside or next to each bubble. Use pages as a reference. Task 2: Answer the following questions. Use page 195 as a reference. 1.Why are there no truly perfect competitive markets? 2.How is the corn market in the United States like a perfectly competitive market? 3.Why does imperfect competition occur within the corn market? 4.NEXT LEVEL QUESTION – Can you think of another industry or market that comes close to perfect competition? Why is it close? Which characteristics does it lack? Top half of page Bottom half of page

PAGE 23 – PERFECT COMPETITION Perfect competition - ideal model of a market economy; there are five major characteristics

PAGE 23 – PERFECT COMPETITION Characteristic 1: Many Buyers and Sellers CUSTOMER CHOICE = LOW PRICES Many buyers AND lack of demand will not cause sellers to lower prices Characteristic 2: Standardized Product One producer’s product is identical to another’s Price is only basis for consumer choice

PAGE 23 – PERFECT COMPETITION Characteristic 3: Freedom to Enter and Exit Markets No regulations – FREE MARKET Characteristic 4: Independent Buyers and Sellers NO COLLUSION, NO PRICE FIXING Supply and demand set equilibrium price

PAGE 23 – PERFECT COMPETITION Characteristic 5: Well- informed Buyers and Sellers Buyers can compare prices Sellers know what competitors charge, what buyers willing to pay Price taker - seller that accepts a market price that is set by supply and demand

PAGE 24 - MONOPOLIES

JP MorganAndrew CarnegieJohn D. Rockefeller

PAGE 24 - MONOPOLIES Characteristic 1: Only One Seller Single business controls supply of product without close substitutes Ex. De Beers cartel controlled diamond market in 20th century Can you think of any other examples?

PAGE 24 - MONOPOLIES Characteristic 2: A Restricted, Regulated Market Government regulations allow single firm to control market De Beers worked with South African government restricted access of other producers controlled supply of diamonds

PAGE 24 - MONOPOLIES Characteristic 3: Control of Prices Monopolists control prices = no close substitutes During economic downturns, De Beers created artificial shortage In times of shortage, what happens to price? Cullinan Diamond – carats (S. Africa) Est. value - $2 billion

PAGE 24 - MONOPOLIES Create a short four line rap about the above cartoon. Try to use as many words as you can from the bank at the top of this page. Word Bank: TrustPrice Monopoly Standard Oil Sherman Anti-Trust Control Competition

PAGE 25 – OLIGOPOLIES KEY CONCEPTS Oligopoly - market structure with only a few sellers offering similar product Less competitive than monopolistic competition each firm has large market share high start-up costs = few firms

PAGE 25 – OLIGOPOLIES Characteristic 1: Few Sellers and Many Buyers A few firms dominate market industry is oligopoly if four firms control 40 percent of market About half of manufacturing industries in United States are oligopolies Ex. breakfast cereals Can you think of any others? soft drinks, movies, industrial products

PAGE 25 – OLIGOPOLIES Characteristic 2: Standardized or Differentiated Products Many industrial products standardized such as glass, aluminum, steel, plastic differentiate by brand name, service, location Many consumer goods are differentiated use marketing strategies, such as focus groups, surveys

PAGE 25 – OLIGOPOLIES Characteristic 3: More Control of Prices Each firm’s decisions about supply and price affect entire market If one firm lowers prices, others probably will too no firm gains market share from price drop; all risk losing profits If one raises prices, others may not in order to gain market share

PAGE 25 – OLIGOPOLIES Characteristic 4: Little Freedom to Enter or Exit Market High start-up costs make entry hard Established firms have resources, patents, economies of scale High investment by firms in oligopoly make exit difficult Ex. What if AT&T just shut down?

PAGE 25 – OLIGOPOLIES

MARKETING ACTIVITY Task: Create an advertisement demonstrating product differentiation and non-price competition. Read page 206 and the top two paragraphs on 207. Back of page: Define monopolistic competition, product differentiation and non-price competition. Put your name and period. Front of page: Create a full page ad for the business you created last week. It should demonstrate product differentiation and non-price competition. It should also include some sort of visual and color.

PAGE 26 – GOVERNMENT REGULATION AcronymAgencyDatePurpose Examples of Responsibilities FDAFood and Drug Administration 1906Protects consumers from unsafe foods, drugs and cosmetics; requires truthful labels Inspects food production facilities, regulates tobacco production, requires labels, educates consumers FTCFederal Trade Commission 1914Enforces antitrust laws and monitors unfair business practices, including deceptive practices Investigates complaints, sues companies that break laws, educates consumers

PAGE 26 – GOVERNMENT REGULATION AcronymAgencyDatePurpose Examples of Responsibilities SECSecurities and Exchange Commission 1934Regulates the market for stocks and bonds to protect investors Investigates complaints, sues individuals and companies that break laws FCCFederal Communications Commission 1934Regulates the communications industry, including radio, television, cable and telephone services Promotes competition, helps to develop infrastructure, ensures public safety.

PAGE 26 – GOVERNMENT REGULATION AcronymAgencyDatePurpose Examples of Responsibilities EPAEnvironmental Protection Agency 1970Protects human health by enforcing environmental laws regarding pollution and hazardous materials Assesses current environmental conditions, enforces environmental law, environmental planning, etc. CPSCConsumer and Product Safety Commission 1972Sets safety standards for thousands of types of consumer products, issues recalls for unsafe products Investigates claims and reports, sues companies that fail to comply.

PAGE 27 – MARKET STRUCTURE REVIEW Directions: Write each sentence below; if the statement is true, write the word true next to it. If it’s false, write false and then rewrite the statement below the original statement so that it is true. 1.Monopolistic competition involves many buyers and sellers. 2.An oligopoly has few buyers and sellers. 3.Standardized products are characteristic of monopolistic competition. 4.Differentiated products are characteristic of monopolistic competition but not of monopolies. 5.Very few manufacturing industries in the United States are oligopolistic. 6.Competitors in monopolistic markets use non-price competition. 7.Sellers in an oligopoly have more control over prices than sellers in monopolistic competition. 8.Start-up costs to enter a market ruled by monopolistic competition are about the same as start-up costs to enter an oligopolistic market. - TRUE - FALSE

PAGE 28 – TYPES OF BUSINESS ORGS.

PAGE 29 – MARKET STRUCTURES 1.Monopoly 2.Oligopoly 3.Perfect Competition 4.Monopolistic Competition 5.Nonprice Competition 6.Standardized Product 7.Deregulation Once you have completed this answer questions 1 – 8 on page 222. Define the following terms and explain the purpose of each. *Use pages

PAGE 30 – BUSINESS ORGANIZATIONS 1.Partnership 2.Sole Proprietorship 3.Franchise 4.Corporation 5.Bond 6.Limited Life 7.Unlimited Liability Once you have completed this answer questions 1 – 8 on page 254. Define the following terms and explain the purpose of each. *Use pages