perfect competition total supply & total demand interact equilibrium price (q.d. = q.s.) rarely...
TRANSCRIPT
Perfect Competition
• Total Supply & Total Demand interact Equilibrium Price (Q.D. = Q.S.)
• Rarely seen in real world
5 Conditions of Perfect Competition
1. Large Market (lots of buyers and sellers)
2. Similar Product
3. Easy Entry and Exit-Sellers can’t prevent competition (entry to market)
4. Easily Obtainable Info-Info on P, Q, S easy to find
5. No control over Price-S & D control market, NOT single buyer or seller
Real Life Example: Agriculture
• Farmers accept market Price– Can’t sell more expensive: no one will buy– Won’t sell cheaper: lose $$$
• Crop similar (corn is corn…)
• Costs low to buy/rent farmland compared to starting a corporation. Farming methods can be learned
• Info. easy to find
• 1 farmer has no control of price
Wanted: Perfect Competition
• Competition price so only
covers cost of production and normal profit = GREAT FOR CONSUMERS!!
Imperfect Competition
• Individual or group buys/sells product in large enough amounts that price is affected
• Monopolies, Oligopolies and Monopolistic Competition = Imperfectly Competitive
Pure Monopoly
• Most extreme form of imperfect competition
• Single seller controls Supply of product and so determines Price– Some electric
companies– Postal Service first
class mail delivery
4 Characteristics of Pure Monopoly:
1. Single Seller
2. No substitutes
3. No entry-barriers to prevent others from entering market
4. Almost complete control of price-control price by controlling supply
-however, can’t charge outrageous price
because law of demand (P up, D down)
Types of Monopolies
1. Natural-
• Produce products for lowest cost, force competitors out of business
• Need large investment
• More efficient to have one business
*EG: Electric Company
Types of Monopolies
2. Geographic-
• Best location
• But many losing importance
*EG: small-town
auto repair shop
OR Wal-Mart
Types of Monopolies
3. Technological-
• Seller has patent– Gives right to exclusively manufacture an
invention for a specific # of years
*EG: Polaroid film
OR any invention!
Types of Monopolies
4. Government-• Created by legal barriers to entry
• EG: Tennessee Valley Authority (TVA)– federally owned corporation in U.S. created in May
1933 to provide navigation, flood control, electricity generation, fertilizer manufacturing, and economic development in the Tennessee Valley (region greatly impacted by Great Depression)
Cartel
• International monopoly
• Arrangement among groups of industrial business, usually in different countries, to reduce international competition by controlling price, production, and distribution of goods
• EG: OPEC -1960
Oligopoly
• A few suppliers dominate, have some control of price
• Examples?– Airline industry– Cigarette industry– Domestic car industry
5 Characteristics of Oligopolies:
THINK AIRLINE INDUSTRY…
• A few sellers dominate
• Barriers to entry
• Identical or slightly different products
• Nonprice competition
• Limited control over price (eg: price wars)
Nonprice Competition
• Style
• Color
• Convenience
Oligopolies
Are they harmful?
-Compared to perfectly competitive industry, NO!
-Stable prices, wider variety of products
Monopolistic Competition• Large # sellers offer similar but slightly
different products
• Very common in many U.S. industries • Competitive Advertising
5 Characteristics of Monopolistic Competition:
THINK TOOTHPASTE INDUSTRY
• Numerous sellers• Relatively easy entry• Differentiated products• Nonprice competition• Some control over price
-due to customer loyalty and product differences
Comparison (p. 232)
Least Competitive Most Competitive
Monopolistic
Competition
Many sellers
Monopoly
1 seller
Oligopoly
Few sellers
Perfect
Competition
Very many sellers
Homework
• Write 2 paragraphs. Explain which market structure (perfect competition, pure monopoly, oligopoly, or monopolistic competition) is best for:
A. The consumer
B. The producer
Due tomorrow.
Homework
• Read Chapter 10, Section 3 (p. 244-247) for tomorrow!!!