1. Market structures & business organizations
Berk’s economics

2. Market structures and business organizations
Perfect Competition
Monopolistic Competition
Monopoly
Oligopoly
Sole Proprietorships
Partnerships
Corporations
Other Organizations
Cooperative
Franchise
Non-Profit

3. Market structures PERFECT COMPETITION
* every firm produces identical product for same price
* no one firm controls price; examples are farm products, stocks traded
* Commodity- product that is the same regardless of who makes or sells it
IMPERFECT COMPETITION
*exist when there are barriers to entry
*high start up costs
*technology/skills
*competition/price

4. Market structures – monopolistic competition
many companies sell products that are similar but not identical (jeans, ice cream)
competitive due to slight control over prices/offer products slightly different from others – differentiation
Non-price competition: using something other than price to attract customers like color, texture, location, advertising and convenience - can help businesses attract customers.

5. examples of monopolistic competition
*sell products that are similar enough to be substituted but not identical - allows for a slightly higher price but just slightly higher
*Differentiation occurs when a good is produced slightly differently from another good – critical in monopolistic competition
*Levi jeans can easily be substituted for Lee jeans.

6. 4 Conditions for monopolistic competition
many buyer & sellers participating
Lower prices in this market
sellers must offer identical products
buyers & sellers must be well informed about products
sellers must be able to enter & leave market easily
Easy out if not earning good profit

7. Market structures - monopoly
market dominated by single seller; many buyers
leads to higher prices, inferior quality of products, and reduced supply.
outlawed for most industry in U.S. - government carefully watches market activity and prevents through formation of ANTI-TRUST LAWS
NATURAL MONOPOLIES allowed when one large firm is more efficient (ie. Telephone, water)
PATENT - license given to the inventor of a product to be the sole supplier of the product for a number of years – incentive for invention

8. Market structures - Oligopoly
dominated by a few large firms
the four largest firms produce at least 70 to 80 percent of the market’s output.
air travel, soda, breakfast cereal, household appliances
sometimes illegally set prices at same or similar to reduce competition – Price Fixing
The government closely monitors oligopolies
Barriers to entry can lead to oligopolies.
Market structures - Oligopoly

9. Comparison of market Structures
Perfect Competition
Monopolistic
Competition
Oligopoly
Monopoly
Number of firms
Many
2 to 4 dominate
One
Variety of goods
None
Some
Control over prices
Little
Complete
Barriers to entry/exit
Low
High
Examples
Wheat, shares of stock
Jeans, books
Cars, movie studios
Public water

10. Market Structures review
List two conditions of monopolistic competition.
What is the difference between differentiation and nonprice competition?
List two conditions of an oligopoly.
Why does the government closely monitor oligopolies?
Define commodity and provide an example of a commodity.
Provide two examples of barriers to entry and explain why they are barriers to entry.
Why are few markets perfectly competitive?
Define monopoly.
Why does the government enforce Antitrust laws?
Why is public water a natural monopoly?

11. Business organizations
A business organization is an establishment formed to carry on commercial enterprise

12. Types of business organizations
SOLE PROPRIETORSHIP
PARTNERSHIP
CORPORATION
OTHER ORGANIZATIONS
FRANCHISE
COOPERATIVE
NON-PROFIT

13. Business organizations
Sole Proprietorship
business owned and run by one person; approx. 75% in U.S.
bakery, bicycle shop, barber shop
owner keeps all profits after income taxes
legal obligation for all debt, no fringe benefits (vacation, insurance, retirement)

14. ADVANTAGES AND DISADVANTAGES OF SOLE PROPRIETORSHIP
The greatest advantage of owning a sole proprietorship is the ability of the owner to make all decisions.
The owner also keeps all profits after taxes.
Many people enjoy being the boss.
The greatest disadvantage of a sole proprietorship is that the owner has unlimited personal liability.
Unlimited personal liability means that the owner has the obligation to pay all debts.
Liability is the legally bound obligation to pay all debts.

15. BUSINESS ORGANIZATIONS SOLE PROPRIETORSHIPS
FRINGE BENEFITS
Sole proprietors have a hard time attracting good workers because they cannot afford fringe benefits.
Fringe benefits are payments other than salaries.
Paid vacation and health insurance are examples of fringe benefits.
ZONING LAWS
restrict where businesses can be located.
states where businesses can be established in a town
Generally, towns have business districts and residential neighborhoods

16. A sole proprietorship is the least-regulated form of business in the United States.

17. Business organizations
Partnership
owned by two or more persons
must agree on how profits and responsibilities are divided
General- all partners equally exposed to unlimited liability
Limited- only one partner exposed to unlimited liability
Limited Liability- all partners are limited in their exposure to liability; only some individuals are allowed to form such partnerships (doctors, lawyers, and accountants)

18. Unlike a sole proprietorship, a corporation is a business owned by stockholders.

19. Business organizations
Corporations
legal entity owned by individual stockholders
each stockholder has limited liability
can only lose what he/she invests
amount of stock is share of ownership
corporation can be sued but individual stockholders cannot be sued.
ASSETS – money and other values belonging to corporations and partnerships

20. Stocks and Bonds/making money
corporations
Stocks and Bonds/making money
stocks are generally sold; corporation acquires capital
buying stocks makes individuals partial owners of a corporation
stockholder has limited liability; can only lose investment.
raise money by selling stocks or bonds
When a person buys stock, he becomes a partial owner. When he buys bonds, he loans money to the corporation and must be repaid.
Remember the investment poem:
Stocks, you own
Bonds, you loan

22. A multinational corporation (MNC) is a corporation that operates in different countries.

23. OTHER Business organizations
Cooperative
owned and operated by group of people for their shared benefit
selling merchandise, agriculture, insurance, health care, power

24. Franchise. semi-independent business
Franchise * semi-independent business. * pays a fee to a parent company in exchange for the right to sell the parent company’s products * owner must conform to the parent company’s rules

25. OTHER Business organizations
Non-profit Organization
functions like business but with no profit; serves society
museums, schools, YMCA

26. Business organizations review
What is a sole proprietorship and why is it the most common form of business organization in the United States?
Why do sole proprietors have unlimited personal liability?
What are zoning laws and how do they affect neighborhoods?
Why would a partner chose to be a limited partner?
Who is allowed to form a limited liability partnership? Why?
How does a person become a stockholder and why would a person want to become a stockholder?
Why must the owner of a franchise pay a fee to a parent company?
Provide three examples of franchises.
What is a cooperative?
Why are nonprofit organizations in the business of serving society?