Econ Ch7 Competition

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Econ Ch7 Competition

  1. 1. Chapter Competition 7
  2. 2. <ul><li>Competition =freedom to choose from several alternatives </li></ul><ul><li>Competition is about choice </li></ul><ul><li>It is the very basic principle of economics </li></ul>
  3. 3. Six Conditions of Competition <ul><li>Number of buyers and sellers in the industry </li></ul><ul><li>Type of product produced (identical or unique) </li></ul><ul><li>Degree to which individual firms in the industry control price </li></ul><ul><li>Amount of information available to producers and consumers </li></ul><ul><li>Ease of entry and exit from the industry </li></ul><ul><li>Role of government </li></ul>
  4. 4. Perfect Competition: <ul><li>thousands of firms, acting independently, turn out identical products for consumers. </li></ul><ul><li>Supply and demand work together to decide which goods and services will be produced and at what price </li></ul><ul><li>Rarely exists anywhere in the world. </li></ul><ul><li>1000s of buyers and sellers </li></ul><ul><li>Identical products </li></ul><ul><li>No control over price </li></ul><ul><li>Complete information </li></ul><ul><li>easy entry and exit </li></ul><ul><li>Small role of government </li></ul>
  5. 5. Imperfect Competition <ul><li>Monopolistic </li></ul><ul><li>Many sellers/buyers </li></ul><ul><li>Differentiated products </li></ul><ul><li>Limited control over price </li></ul><ul><li>Good access to information </li></ul><ul><li>Relative easy entry and exit </li></ul><ul><li>Small role of government </li></ul><ul><li>Oligopoly </li></ul><ul><li>Few firms </li></ul><ul><li>Differentiated or identical products </li></ul><ul><li>Greater influence on price </li></ul><ul><li>Limited information </li></ul><ul><li>Difficult entry and exit </li></ul><ul><li>Larger role of government </li></ul>
  6. 6. No Competition: Monopoly <ul><li>Characteristics of Monopoly: </li></ul><ul><li>One firm </li></ul><ul><li>Unique product </li></ul><ul><li>Control over price </li></ul><ul><li>Complete information </li></ul><ul><li>Extreme difficulty of entry and exit </li></ul><ul><li>Significant role of government </li></ul>
  7. 8. Types of Monopoly <ul><li>Natural monopoly: single firm produces more efficiently than competing firms </li></ul><ul><li>(Ex: Electric Companies) </li></ul><ul><li>Government monopoly: government grants company a monopoly </li></ul><ul><li>(Ex: USPS, Garbage) </li></ul><ul><li>Monopoly franchise: local government grants exclusive right to do business in an area </li></ul><ul><li>(Ex: Cable companies) </li></ul><ul><li>Technological monopoly: company patents/copyrights product to eliminate competition </li></ul><ul><li>(Ex: Pharmaceuticals, Computers) </li></ul><ul><li>Geographic monopoly: sole provider in a region </li></ul><ul><li>(Ex: Supermarkets in small towns) </li></ul>
  8. 9. HW: Features of Various Market Structures Market Structures Feature Monopoly Oligopoly Monopolistic Competition Perfect Competition Role of Government Ease of Entry and exit Amount of Information Influence over Price Type of Product Number of Firms in Industry

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