Chapter

Competition & Monopolies

Page 148

Competition

Basic feature of market economic systemADVANTAG

ES• Choices• Lower PricesWHY?

Competing supplies leads to surplus

Do suppliers like competition?

BUSINESSES are set up based on # of ownersSole proprietorship, partnership &

corporation

also grouped by competition facedOr MARKET STRUCTURE

4 BASIC MARKET STRUCTURES

Fig. 37 p. 149

Perfect CompetitionMonopolistic CompetitionOligopolyMonopoly

Perfect CompetitionMonopolistic CompetitionOligopolyMonopoly

MARKET STRUCTURES2 are rare2 are common

??

RARE

RARE - pure

All businesses competewhen others produce similar

goods/services.

Market with so many sellers of a good/service, each having a small share is called…

Perfect competitionSo many that no single

buyer/seller can affect price.

Perfect competition

also known as

PURE competition

Requires 7 conditions to be met

1. A largemarket

NUMEROUS buyers/sellers for product

2. similar/nearly identical

good/service

3. easyEntry & ExitSellers in market can’t prevent competition

OR entranceSmall initial investment

Good/service is easy to produce

4.info- easy to getEASY for buyers/sellers – info

about

prices / quality / supply sources

5.independencePossibility of sellers/buyers controlling prices

virtually

nonexistent

6.NO CONTROLover price

1st 5 conditions, price’s controlled by supply & demandNOT buyers/sellers

PERFECT COMPETITION Needs many suppliers of similar products & many informed buyers who know market prices

Market price = equilibrium price

in Pure Competition

Total supply & total demand interact to reach equilibrium price.

Because there are so many buyers/sellers, a person charging more or less DOES NOT

affect market price.

7. information

About PRICES, QUALITY & SUPPLY SOURCES

TODAYit’s easy to find lowest price!

TRUE Perfect Competition is

RARE

WHEAT MARKETas a Perfect Competitor Agricultural Market in U.S.A. – CLOSE to being Pure

Competition7 conditions 1. Large market1000’s of farmers producing/Wholesalers

buying2. SIMILAR PRODUCT

3. EASY entry/exit Low rent/Learnable

4. 4. EASY INFO – Wheat prices on Internet

5. independenceSmall chance of farmers controlling price 6. no control

over pricesNO farmer has big influence on price

7. unique situation

Inelastic demandsupply side of most agricultural markets is unique

Market dependent on conditions over which farmers have little control

Society Benefits

Intense competition forces price down (costs + small profit)Consumers pay for what’s been put in to make productsOP COST of use of land, lavor, capital &

entrepreneurshipPRICE paid by consumers = true signal of value of product in society

PURE competitive industries = ECONOMIC EFFICIENCY

upcoming

Monopoly, Oligopoly, Monopolistic Competition

competition & monopolies