1. Chapter 7.1 Notes
Market Structures

2. 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

3. 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

4. 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.

5. 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.

6. 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

7. 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.

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

9. 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