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)