Economics - Chapters 7-8 Market Structures
Define Oligopoly
A market in which control over the supply of a product is in the hands of a small number of producers and each one can influence prices and affect competitors.
Define Pure Competition
A market structure characterized by many buyers and sellers, firms producing identical products (commodity) and no barriers to producers to enter and exit.
Define Commodity
A product that is the same no matter who produces it. Examples: gas, milk, corn
What are barriers to entry?
Anything that makes it hard/expensive for a new firm to enter a market
What happens to a monopolistically competitive firm if it charges excessive price for it's product?
Consumers will substitute a competitor's product
Why are patents important to the market place?
Encourage research and development of new products
Define price discrimination.
Exists when a producer sells the exact same product to different consumers at differences prices.
Which market structure has many companies in the market selling similar but not identical products?
Monopolistic
Example: jeans
Monopolistic Competition
Firms have slight (a little) control over prices
Monopolistic Competition
Which market structure has few barriers to enter the market?
Monopolistic Competition
Example: public utilities (water), professional sports leagues (NFL, MLB)
Monopoly
Huge entry barriers (difficult to enter)
Monopoly
In which market structure would be found firms that sell one product?
Monopoly
Define natural monopoly.
Most efficient with just one supplier; example: public utilities
A few large firms (two to four) producing 70% - 80% of the output
Oligopoly
Airlines, breakfast cereals, fast food are examples of industries in which market structure?
Oligopoly
Significant barriers to enter market (somewhat difficult)
Oligopoly
List the market structures from least to most competitive.
Perfect Competition, Monopolistic Competition, Oligopoly, Monopoly
Easy to enter the market
Pure Competition
Firm has to accept the market price is a disadvantage of which market structure?
Pure Competition
Firms sell identical product (commodity)
Pure Competition
Which market structure has many buyers and sellers?
Pure Competition
Which market structure would supply products such as gas, milk, corn?
Pure Competition
Why does a perfectly competitive market require many buyers and sellers?
So that no individual can control the price
Define price fixing.
The practice by which businesses or individuals use their influence to encourage others to sell at the same price as themselves.
Define Monopoly
When a single seller controls production of a product and its price. Characterized by high prices and few goods.
Define Monopolistic Competition
a market structure in which many companies sell products that are similar but not identical
Define patent.
government document giving an inventor exclusive rights to make & sell his/her invention for specific number years
