Unit 7 Chapter 7 (Economics Textbook)Chapter 26/ Section 3 (Civics Textbook)

Market Structures and Current Changes

What is a market Structure?

These are ways the economy of a country is run through businesses, government control, competition and prices.There are 4 specific market structures and more than 1 market structure can exist in a country. Perfect competition Monopolies Oligopolies Monopolistic Competition

Perfect Competition

4 conditionsMany buyers and sellers participate &

accept price.Sellers offer same/ similar product.Buyers & sellers are well informed about

product.Sellers are able to easily & freely enter and

exist market.

Perfect CompetitionCharacteristics:

Allows many businesses to produce the same or similar productsHas no influence on price (equal), because produce at low levels.Consumer does not care where they get the commodity from.Buy based on best deal or lower price.

Provides buyer with full information about a product & price.

Perfect CompetitionCharacteristics:

Allowed to enter business when there is money to be made, and then leave when money decreases.

More business, brings more competition and therefore lower prices.Barriers of Entry do not exist because

then it would cause and imperfect competition.

Common barriers: skilled/ experienced personnel, technology & start-up cost

Perfect CompetitionCharacteristics:

Efficient

Competition keeps prices & production low.

Prices represent the opportunity cost of each product.

MonopolyCharacteristics:

Allows only 1 seller of a product with multiple buyers.

Exist because of barriers of entry have formed

Causes specific problems, therefore is illegal in the USA. Takes advantage of marketCharges high prices

MonopolyCharacteristics:

Set prices as high as consumer will pay.

Contribute to price discrimination, to better their sales & profitsDo this through market power

Found everywhere, except in perfect competitions markets.

Use is legal, but businesses are just know to use to drive out competition.

How can Price discrimination properly work?

Market PowerNo high competition, so prices can be

controlled

Distinct Customer GroupDivide customers, by price sensitivity

Difficult ResaleMore product is consumed,

less likely to sell used.

How markets get around price discrimination?

Offer discount to consumers who will not pay the high prices.Effect: Usually charge higher prices to

people that need it the most.

Offer manufacture rebates

Offer Senior & student discounts

Offer FREE Promotions

MonopolyCharacteristics:

Forms Economies of Scale Producers cost is low, as production

increases. (causes low prices) If limited cost & production will increase.

(Cause high prices)Rarely achieved because production becomes

more efficient with increased production.Can form into a Natural Monopoly

MonopolyCharacteristics:

Natural MonopoliesWorks best with 1 large business providing

all the output.2 or more businesses lower prices & quantities,

to where multiple businesses cannot last.Allowed so resources are not wasted

Government controls prices & servicesCan be replaced by technology

MonopolyCharacteristics:

Government MonopolyGovernment regulates and creates barriers

of entry.Controls Industrial Organizations

Allows the businesses within the industry, to restrict the number of businesses in the market

Causes high prices, because supply is limitedHelps form technological monopolies

MonopolyCharacteristics:

Technological MonopoliesFormed by patents

Gain profit from research without competitionFranchise

Keeps small markets under controlLicense

Monopolistic Competition4 Conditions Many businesses, with easy start-up cost Few barriers of entry

Similar products or no patents Many competitors

Slight control over price Most control is in the hands of the consumer

Differentiation Products Control over price is based on quality of product vs. other

products.

Monopolistic CompetitionCharacteristics:

Many Businesses sell similar products

Similar to perfect competition, but substitutes are created in most everyday life goods & services

Offer many varieties & therefore production cost are high and resources are not used efficiently.

Monopolistic CompetitionCharacteristics:

Nonprice CompetitionPhysical CharacteristicsLocationService LevelAdvertising/ Image/

Status

Monopolistic CompetitionCharacteristics:

Price is high compared to perfect competition, but does not exceed monopolies. Keep where consumers will still pay & obtain

substitutes Production & price stay fairly equal

Profit is earned just enough to cover cost because of competition & substitutes.

OligopolyCharacteristics:

Imperfect form of a monopoly, because it has a few businesses.

Businesses have high prices and low production, because they work together as a team.

Government licenses & patents, high start-up cost, nonprice competition & economies of scale will form barriers of entry

Oligopoly Characteristics: Factors are legal ways to cheat and

control competitionTry to undertake price leadership to set prices Sometimes end in price wars & then will form

collusion

Collusion form price fixing Illegal in USA

Cartels Illegal in USA & usually do not last Only survive if agree on price & production for

profits to be even Usually cheat & increase quota that lowers prices

Collapse if 1 groups is left out.

Economic Markets in Transition

Main reason why countries transfer to a mixed economy is because of it’s success & prosperity.

Economic Markets in Transition

Problems with other economies Controlled by 1 group Mistakes are common Late arrival of supplies Too much/ little of goods produced Not delivered to correct locations Process complicated Limited access to goods because low levels of

trade.

Economic Markets in Transition Current Problems facing transitions:

Trade makes items cheaper & harder to compete with.

Unemployment is high

Getting used to/ forming stock markets, private ownership of factories, and letting supply/ demand determine price.

High population rate (developing countries) above the GDP

Land locked countries and no access to water trade routes.

Lack of Natural Resources

Problems left over from war Destroyed infrastructure, death, etc.

Severe Debt Borrowed money to spur economic growth and now facing difficulty

paying them off

Corruption

Economic Markets in Transition

Ways countries help countries in transition Globally. Some try to overcome on own & we respect

wishes International Monetary Fund (IMF)

Give advice & financial assistance (monetary/ fiscal policy)

World Bank Gives loans & advice to countries trying to improve

economy In total both organization have 127 billion in

outstanding loans.