2 Standard SSEM14The student will explain the organization and role of business and analyze the four types of market structures in the U.S. economy.a. Compare and contrast three forms of business organization—sole proprietorship, partnership, and corporation.b. Explain the role of profit as an incentive for entrepreneurs.c. Identify the basic characteristics of monopoly, oligopoly, monopolistic competition, and pure competition.
4 When you think of market structures think……SHOPPing!
5 ShoppingThink of the environment that you shop in: 1. Are many choices? 2. What are prices like? If they are high, why? 3. Can you find similar products? Is there only one product choice? 4. Do the producers try to gain your attention by using unique labeling, advertisements, Etc?
6 Vocab to know…Market power – ability to increase prices and people still buy itBarriers to entry – how difficult it is to enter the industry
7 Market Structure Features of a Market. Such as: Ease of entry into the marketCan a new producer easily enter the market?Number of buyers/sellersForms of competitionEx. advertising
8 Perfect CompetitionThis market structure is not real. It is guided strictly by the laws of supply and demand.It is a theory that economist created to show what a true competitive market would looklook like. Ranked #1 in competition.
9 Perfect Competition1. Commodities (ID products) – only way to compete is with prices2. Easy entry/exitLow barriers to entry3. Many buyers and sellers – no monopolies can form4. Consumers are well informed – we know what we are getting5. No price control – no market power, all products alike so you can only compete with priceExample: agricultural productsName your own example
10 Monopolistic Competition This is a REAL market structure. You shop in it regularly.It is based on differentiating your products to increase its uniqueness.Uniqueness= higher price that you can charge!
11 Monopolistic Competition 1.Similar productsDifferentiateSo similar you can substitute2.Easy entry/exit3.Many buyers and sellers4.Consumers are well informed5.Some price control – some market powerSince the products are differentiated, you can charge a little more because of its uniqueness.Example: cheeseburger fast food, shampoo
12 Can you name to product the slogan is representing? Just do itPush through the painBecause I’m worth itLike a good neighborWhen you care enough to send the very bestBe all that you can beMelts in your mouth, not your handsTurning dreams into realityI don’t want to grow up….That was easy
13 answers Nike Tylenol L’Oreal State Farm Insurance Hallmark US army MM’sCitibankToys R UsStaples
15 LogoLevis Nestle HP Dreamworks Pantene Monster Hotwheels Lay’s
16 Watch thesesm34 PPw How did they try to differentiate? Do you think their strategy will work?
17 Review Why does Perfect competition have identical products? Give an example of how a candy bar can be differentiated.How did Monopolistic competition get its name?Which market structure would you rather shop in?
18 Basketball Shoe You must have: 5 nonprice factors drawn and marked on your shoeName your shoeCreate a sloganCreate a logoAll of these must been on the front of your shoe. We will vote on these in class! The winner gets candy and a free homework pass!!
19 MonopoliesThe game monopoly and the economic term monopoly have something in common. What do you think it is?
20 MonopolyA monopoly is when one producer sells a good or service. Since he is the sole provider, he can charge whatever price he/she wants.
21 Monopoly 3 characteristics Sole producer (high market power) No close substitutesHigh barriers to entry
22 4 Types of monopolyNatural Monopoly – single producer that produces most efficiently b/c of the economies of scale.Example – power companiesGeographic Monopoly – a monopoly due to location.Example – Disney World, the movie theater, Six Flags
23 4 Types of MonopoliesTechnological Monopoly – a producer is the only one with a certain technology or way of producing.Ex. Patent and copyright.Ex. Polaroid CameraGovernment Monopoly – the government is the sole producer of a product.Example – water company, 1st class mail
24 Review monopoliesLegal barriers in place to prohibit a company from forming to compete against the governmentWhen competition is not practicalWhen you dominate an area because having another competitor isn’t financially profitableHaving legal protection
25 OligopolyA market structure where there are only 3-5 producers that produce the good or service
26 Oligopoly Characteristics 3-5 producers Differentiated products High barriers to entry and high market powerInterdependentExample – cereal industryKelloog, Post, and General MillsAmerican Cars – GM, Ford, Chrysler/Dodge
27 Oligopoly Oligopolies compete legally with price wars Differentiation of products
28 Oligopoly Illegal Oligopolies Illegal Oligopolies Cartel – openly announce they are a cartel. They TELL they are a cartel. They openly tell they are an Oligopoly that acts as one!Cartels openly set prices and productionEx. OPECCollusion – secretly set prices and production.Both are illegal in the US because they set prices.Illegal OligopoliesCartel – openly announce they are a cartel. They TELL they are a cartel. They openly tell they are an Oligopoly that acts as one!Cartels openly set prices and productionEx. OPECCollusion – secretly set prices and production.Both are illegal in the US because they set prices.
29 Review oligopolyAssuming both are allowed in the US from a consumer point of view, how could a cartel (or collusion) benefit a consumer?How is an Oligopoly similar to a monopoly?How is an Oligopoly similar to monopolistic competition?Could an oligopoly form in a perfectly competitive market? Why?
30 Review - answer with a partner What is an advantage of buying a product from a monopoly? Disadvantage?Which of the four types of monopoly has economies of scale? Why?Name one way PC and MC are alike? Different?Why are cartels/collusions bad for consumers?Explain barriers to entry and market power with only a three word phrase. (3 word phrase for each)Why is Perfect Competition the most competitive market structure of all four?
31 Antitrust ActsIf the government didn’t step in to regulate markets, do you think problems would arise?YES – that is why we have antitrust acts.
32 Antitrust ActsAntitrust acts were created to prevent big businesses from dominating a market and acting like a monopoly or trust.A trust is a group of companies that act like a monopoly. This is bad because it sets prices too high which is unfair to the consumer.Deregulation – reduce government regulation in markets. A reduction in government control.
33 3 Antitrust Acts to know Interstate Commerce Act – 1887 Regulated trade and did not allow price setting or price discrimination.Sherman Antitrust Act 1890 – prohibits any agreements, contracts, or conspiracies that would restrain trade – too vague – (1914)Clayton antitrust act strengthened the wording of Sherman. Clayton also legalized strikes and boycotts against companies.Federal Trade commission act 1914 – created the Federal Trade Commission (FTC) to investigate allegations of unfair methods of competition. It also approves of any mergers.
34 Writing assignmentWrite a paragraph about which of the three acts you consider to be the most important to our market based economic system.IncludeThe name of the act and what it does (define)Two reasons it was createdThree reasons you chose it over the othersIt must be a minimum of 6 sentencesUse correct grammar and sentence structure.
35 Test prepReview previous learned material. Such as: Factors of production, circular flow, production possibilities curve, economic systems, supply and demand, types of business, etc.Take the practice test available on my website under the practice test questions heading.Review current material. Maybe explain all four market structures to your parents and see if they can pass my practice test after hearing your lesson!!