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The document discusses different market structures including perfect competition, pure monopoly, oligopoly, monopolistic competition, and monopsony. Perfect competition is considered an ideal setup for efficient allocation of resources, though some conditions like many small firms and perfect knowledge are difficult to meet. A pure monopoly has a single seller with no direct competitors that can influence prices. Oligopoly is characterized by a few dominant firms that may compete or collude with each other. Monopolistic competition involves differentiated products among many firms.

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Iriz Beleno
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45 views

Econ Reviewer

The document discusses different market structures including perfect competition, pure monopoly, oligopoly, monopolistic competition, and monopsony. Perfect competition is considered an ideal setup for efficient allocation of resources, though some conditions like many small firms and perfect knowledge are difficult to meet. A pure monopoly has a single seller with no direct competitors that can influence prices. Oligopoly is characterized by a few dominant firms that may compete or collude with each other. Monopolistic competition involves differentiated products among many firms.

Uploaded by

Iriz Beleno
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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CHAPTER 10 Market Structures Perfect Competition Perfect competition is rather difficult to attain in reality.

. there is a tendency for the equilibrium price level to approach the minimum average cost of production in the long run. Average profit difference between price and average cost Additional cost to society of producing a commodity = additional satisfaction that each member of society will enjoy. (condition for the proper allocation of resources and the state of economic efficiency resources are fully utilized and produce the highest satisfaction in the members of society. Perfect competition is considered an ideal setup for the efficient allocation of resources even if some conditions are hard to meet. A free market It is free from external controls. External controls government regulations which can set either a floor price or a ceiling price on commodities. Many buyers and many sellers in the market.

A large number of buyers and a relatively large number or sellers Small in relation to the entire market so that no single buyer and no single seller can influence the price of the commodity. The entry or exit of one firm into or from an industry or market cannot significantly influence the market price. Price takers no single buyer or seller can influence the market price of a commodity. Buyers or sellers base their decision to consume or produce on the market price determined by the interaction by the numerous buyers and sellers. Homogenous product The product is the same for all the sellers and buyers. Free mobility of resources There is ease in the movement of productive inputs in and out of the market in response to monetary signals. There is no monopoly in the supply of productive inputs like capital, land, and labor. Firms can enter the market freely if price incentives are favorable and leave the market without difficulty if the returns are unfavorable.

Perfect knowledge Economic units have perfect information on prices, costs, and other variables that may influence the behavior of consumers and producers. This is to attain the efficiency in the market.

Pure Monopoly Single producer or seller of a commodity or service. Has no direct competitors The seller can block the entry of resources and firms into the industry because it has a monopolistic power. This market is not free compared to the competitive market. Has indirect competitors a monopolist indirectly competes with producers of other goods and services in his/her attempt to get a larger share of household expense budgets. In effect, a monopolist competes with all the goods and services which consumers usually buy. The market price in this market structure is usually high compared to the price in a competitive market. Monopsony - Existence of a single buyer in the market - A monopsonist will optimize by minimizing its costs and offering the lowest price. - Since it is the sole buyer in the market, it has a dominant effect on the supply. - It limits the amount of a product it will buy in order to minimize its cost and charge a lower price. - Society at large does not benefit from this market structure. -Oligopoly Few sellers in a large market. Product is either differentiated or undifferentiated. Influence of the behavior and decisions of one seller on other sellers in the market. Cement, steel, gasoline, soft drinks Firms either compete or collude with one another If they compete, they can engage in a destructive competition Independent actions of firms can lead to a rigid price The price tends to be fixed at a certain level Collusion agreement among just a few sellers in a large market to control the industry Cartel Large capital

Monopolistic Competition Similar but not identical Has some of the elements of competition and monopoly Numerous sellers and buyers. Exhibit a feature of competition. Different through advertisement and marketing techniques. Toothpaste, soap, detergents, shampoo.

Market Structure the general environment wherein the forces of supply and demand interact. Optimization the process of maximizing the use of resources. Perfect knowledge perfect information Profit revenue less costs

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