Market Structures and Market Failures What happens when markets do not work perfectly?
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Transcript of Market Structures and Market Failures What happens when markets do not work perfectly?
Market Structures and Market Failures
Market Structures and Market Failures
What happens when markets do not work perfectly?
What happens when markets do not work perfectly?
Characteristics That Define Market Structure
Characteristics That Define Market Structure
Number of Producers- the number of producers in a given market
Similarity of Products- the degree to which products in a market are similar
Ease of Entry- how easy it is to start a new business and compete with established businesses
Control over Price- how one can influence price by increasing or decreasing price. (Market Control)
Number of Producers- the number of producers in a given market
Similarity of Products- the degree to which products in a market are similar
Ease of Entry- how easy it is to start a new business and compete with established businesses
Control over Price- how one can influence price by increasing or decreasing price. (Market Control)
Characteristics of “Perfect Competition”
Characteristics of “Perfect Competition”
Many Producers and Consumers- large numbers promote competition
Identical Products- CommodityProducts that are exactly the same no
matter who produces it.
Easy Entry into market- few restrictionsNo Control over Prices- No market
power
Many Producers and Consumers- large numbers promote competition
Identical Products- CommodityProducts that are exactly the same no
matter who produces it.
Easy Entry into market- few restrictionsNo Control over Prices- No market
power
WIO: Perfect CompetitionWIO: Perfect Competition
Make a simple sketch of a consumer and a producer. Add a thought bubble for each person that explains one of the benefits of perfect competition.
Make a simple sketch of a consumer and a producer. Add a thought bubble for each person that explains one of the benefits of perfect competition.
What is a Monopoly, and Why Are Some Legal.
What is a Monopoly, and Why Are Some Legal.
Monopoly- Single producer of a product that has no close substitutes.
Monopoly- Single producer of a product that has no close substitutes.
Characteristics of Monopolies
Characteristics of Monopolies
One Producer- No competitionUnique Product- Only product of its
kind, no good substitutes.High barriers to entry- limit or
prevent others from entering market. (Main factor to why they exist)
Substantial Price Control-Great Market Power, no fear of undercutting.
One Producer- No competitionUnique Product- Only product of its
kind, no good substitutes.High barriers to entry- limit or
prevent others from entering market. (Main factor to why they exist)
Substantial Price Control-Great Market Power, no fear of undercutting.
Legal MonopoliesLegal Monopolies
Resource Monopolies- control of a key natural resource, other firms have no access.
Government-created monopolies- created when in public interest
Natural Monopolies-when a firm can provide a good or service more efficiently than 2 or more companies.
Resource Monopolies- control of a key natural resource, other firms have no access.
Government-created monopolies- created when in public interest
Natural Monopolies-when a firm can provide a good or service more efficiently than 2 or more companies.
Why Monopolies are bad for Consumers
Why Monopolies are bad for Consumers
Consumers may pay more than they would in a competitive market
Monopolies have less incentive to innovate or to satisfy consumers.
Strong possibility of lesser product quality and fewer product choices.
Consumers may pay more than they would in a competitive market
Monopolies have less incentive to innovate or to satisfy consumers.
Strong possibility of lesser product quality and fewer product choices.
Characteristics of an Oligopoly
Characteristics of an Oligopoly
Oligopoly- a market or an industry dominated by just a few firms that produce similar or identical products.Few ProducersSimilar ProductsHigh barriers to entrySome control over prices
Oligopoly- a market or an industry dominated by just a few firms that produce similar or identical products.Few ProducersSimilar ProductsHigh barriers to entrySome control over prices
Characteristics of Monopolistic Competition
Characteristics of Monopolistic Competition
Monopolistic Competition- Large number of producers providing goods that are similar but varied.Many ProducersDifferentiated ProductsFew barriers to entrySome control over prices.
Monopolistic Competition- Large number of producers providing goods that are similar but varied.Many ProducersDifferentiated ProductsFew barriers to entrySome control over prices.
WIO: Comparison ChartWIO: Comparison Chart
Good Descriptions! (May use book to help out)Good Descriptions! (May use book to help out)
Market Structures
Number of Producers
Products Ease of Entry
Price Control
Perfect Competition
Monopolistic
Oligopoly
Monopoly
Market Failures: Externalities and Public
Goods
Market Failures: Externalities and Public
GoodsMarket Failure: economy fails to use all
its resources effectively and efficientlyExternality: Side effect of production or
consumption that has consequences for people other than consumer or producer (examples: factory pollution, Corn Syrup company odor, etc.)
Negative externality: cost that falls on someone other than producer or consumer
Market Failure: economy fails to use all its resources effectively and efficiently
Externality: Side effect of production or consumption that has consequences for people other than consumer or producer (examples: factory pollution, Corn Syrup company odor, etc.)
Negative externality: cost that falls on someone other than producer or consumer
Market Failures: Externalities and Public
Goods
Market Failures: Externalities and Public
GoodsPositive Externality: benefit that falls
on someone other than the producer or consumer (ex: neighbor’s flower bed, company creating a less pollutant vehicle, getting a college education)
Technology spillover: technical knowledge from one company spreads to another company or individual (ex: more efficient car = more pollution control
Positive Externality: benefit that falls on someone other than the producer or consumer (ex: neighbor’s flower bed, company creating a less pollutant vehicle, getting a college education)
Technology spillover: technical knowledge from one company spreads to another company or individual (ex: more efficient car = more pollution control
Problems of Private and Public Goods:
Problems of Private and Public Goods:
Public goods: goods and services that are not provided by the market system because of the difficulty of getting people who use them to pay for their use (examples: fire and police, national defense, public parks)
Private goods: goods and services that are sold in markets
Public goods: goods and services that are not provided by the market system because of the difficulty of getting people who use them to pay for their use (examples: fire and police, national defense, public parks)
Private goods: goods and services that are sold in markets
Private vs. Public goodsPrivate vs. Public goods
Private goods are excludable, which means if you don’t pay for the good, you don’t get to use it (example: buying an apple)
Public goods are nonexcludable, which means everyone can use it (example: streetlight)
Private goods are excludable, which means if you don’t pay for the good, you don’t get to use it (example: buying an apple)
Public goods are nonexcludable, which means everyone can use it (example: streetlight)
Private vs. Public goodsPrivate vs. Public goods
Private goods are a rival in consumption: good can’t be consumed by more than one person at the same time (eating an apple)
Public goods are nonrival in consumptions, meaning more than one can enjoy at same time (streetlight)
Private goods are a rival in consumption: good can’t be consumed by more than one person at the same time (eating an apple)
Public goods are nonrival in consumptions, meaning more than one can enjoy at same time (streetlight)