1. 7-1: What is Perfect Competition?

2. Competition
Economists classify markets based on how competitive they are
Market structure: an economic model of competition among businesses in the same industry

3. Perfect Competition Definition: ideal model of a market economy
Perfect competition is used as a basis to determine how competitive a market is

4. 5 Characteristics of Perfect Competition
1. Numerous buyers and sellers
This ensures that no single buyer or seller has the power to control the price in the market

5. 5 Characteristics of Perfect Competition (continued)
Buyers have lots of options
Sellers are able to sell their products at market price

6. 2. Standardized product
A product that consumers see as identical regardless of the producer
Example: milk, eggs, etc.

7. Characteristics of Perfect Competition (continued)
3. Freedom to enter and exit markets
Producers enter the market when it is profitable and exit when it is unprofitable

8. Characteristics of Perfect Competition (continued)
4. Independent buyers and sellers
This allows supply and demand to set the equilibrium price

9. Characteristics of Perfect Competition (continued)
5. Well-informed buyers and sellers
Buyers compare prices
Sellers know what consumers are willing to pay for goods

10. Price Taker
When these 5 conditions are met, sellers become price takers—a business that accepts the market price determined by supply and demand

11. Imperfect Competition
Market structures that lack one of the conditions needed for perfect competition are examples of imperfect competition
This means there are only a few sellers and/or products are not standardized
Examples: corn and beef markets

12. 7-2: The Impact of Monopoly

13. Characteristics of a Monopoly
Monopoly: a market structure in which only one seller sells a product for which there are no close substitutes
Pure monopolies are rare

14. Characteristics of a Monopoly (continued)
A cartel is close to a monopoly
Cartel: a group of sellers that act together to set prices and limit output
Example: OPEC—11 nations hold more than 2/3 of the world’s oil reserves

15. Characteristics of a Monopoly (continued)
A monopoly is a price maker—a business that does not have to consider competitors when setting the price of its product
Consumers accept the price of the product

16. Characteristics of a Monopoly (continued)
Other firms struggle to enter the market due to a barrier to entry— something that stops the business from entering a market

17. 3 Characteristics of Monopolies
1. Only One Seller
Supply of product has no close substitutes

18. 3 Characteristics of Monopolies
2. A Restricted, Regulated Market
In some cases, government regulations allow a single firm to control a market (think utilities)

19. 3 Characteristics of Monopolies
3. Control of Prices
Prices are controlled since there are no close substitutes

20. Types of Monopolies First, not all monopolies are harmful
Natural monopoly: occurs when the costs of production are lowest with only one producer

21. Types of Monopolies (continued)
Example of a natural monopoly= public utilities. It would be inefficient to have more than one a water company competing for customers.
A single supplier would be most efficient according to economies of scale: when the average cost of production falls as the producer grows larger

22. Types of Monopolies (continued)
Government monopoly: exists because the government wither owns and runs the business or authorizes only one producer
Example: U.S. Postal Service

23. Types of Monopolies (continued)
Technological monopoly: occurs when a firm controls a manufacturing method, an invention, or a type of technology
Example: a patent, where an inventor has exclusive rights to that invention or process for a certain number of years

24. Types of Monopolies (continued)
Geographic monopoly: exists when there are no other producers within a certain region
Example: professional sports teams