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MICROECONOMICS: MARKET STRUCTURES Reviewing Key Concepts

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MICROECONOMICS: MARKET STRUCTURES Reviewing Key Concepts MICROECONOMICS: MARKET STRUCTURES Reviewing Key Concepts Remember there’s three key principles in the foundation of microeconomics. PRODUCER CONSUMER MARKET this refers to the this refers to the people this is the physical or businesses that make that buy goods and/or virtual place where goods and/or services services exchanges happen Today our focus is on the markets. We are going to examine some of the different ways that markets can be organized, or structured. MARKET STRUCTURES ◼ An industry consists of all firms making similar or identical products. Like the soft drink industry or the automobile industry. ◼ An industry’s market structure depends on the number of firms in the industry and how they compete. ◼ Market structure is best defined as the organizational and other characteristics of a market. ◼ We will look at the 4 main types of markets, how they are organized, and the characteristics of each. THE FOUR MARKET STRUCTURES ◼ Pure (Perfect) Competition is a market structure characterized by a large number of buyer and sellers of an identical product. (Example: commodities like crude oil) ◼ Monopolistic Competition refers to a market structure characterized by a large number of buyers and sellers of products that are similar to one another be can be differentiated by brand, quality, etc. (Example: restaurants and retail clothing sellers) ◼ Oligopoly is a market structure characterized by only a few sellers of a product who dominate the market. (Example: breakfast cereals and natural gas) ◼ Monopoly is a market structure characterized by only one seller of a product dominating the market. (Example: electrical power companies and cable television companies) HOW ARE MARKETS DISTINGUISHED? ◼ Number of Sellers: Are there many, few, or one seller(s) of the product? The more sellers there are the more competitive the market is. ◼ Barriers to Entry: Are there any obstacles that prevent other firms from entering the market for the good? If barriers are weak or absent from the market, the market will be more competitive. ◼ Price Control: Can the individual firms in the market for a product exercise any control over the price they charge? The weaker the control over price, the more competitive the market. ◼ Product Differentiation: Is there any difference between the products sold by the sellers in the market for the good? If the products sold by the firms in the market are identical, there is no reason for sellers to engage in non-price competition which refers to methods other than price used to attract customers. UNDERSTANDING THE MARKETS Check out the chart to understand the characteristics of each market. Let’s put it all together… Watch the video for an overview of each market structure. Practice! ◼ Which market has the most competition? ○ perfect competition ◼ Which market has the least competition? ○ monopoly ◼ What is an example of an oligopoly? Summary ◼ A market structure refers to the characteristics and organization within a specific industry’s market. ◼ Pure competition has a large number of sellers selling identical products. (ex. farmer’s market) ◼ Monopolistic competition has a large number of sellers selling similar products. (ex. toothbrushes) ◼ Oligopoly has a few sellers selling either the same products or similar products. (ex. automobile companies) ◼ Monopoly has only one producer who controls and industry. (ex. electric company).
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