Download Chapter 1 What Is Economics?

SECTION 1
Highly Competitive Markets
Essential Question:
 Identify the two types of highly competitive
markets, describe the four conditions
required for Perfect competition and explain
why it doesn’t exist, Define the goal of
monopolistic competition, and describe the
ways that sellers attempt to achieve a
monopoly
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SECTION 1
Highly Competitive Markets
Two types of highly competitive markets
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 Perfect (pure) competition is a market
structure in which buyers and sellers each
compete directly and completely under the
laws of supply and demand making the same
products.
 Monopolistic competition is different as
producers attempt to make different products
than their competition or make similar
products SEEM different.
SECTION 1
Highly Competitive Markets
4 Conditions for Perfect Competition
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Many Independent Buyers and Sellers
Sellers offer Identical Products
Buyers are well informed about products
Sellers can enter/exit market easily
SECTION 1
Highly Competitive Markets
Perfect Competition vs. Monopolistic
 Problem with Perfect Competition?
 IT DOESN’T EXIST!!!
 Sellers are greedy and want to increase the
number of buyers in order to make more profit.
 Buyers want the best products at the lowest
possible price
 In order to satisfy both, sellers attempt to make
different products than their competitors OR make
similar products appear to be different
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SECTION 1
Highly Competitive Markets
The Goal of Monopolistic
competition
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 Eliminate your competition and create a market
structure known as a monopoly
 A monopoly is a market structure with only
one seller.
 In order to do this, sellers must take buyers
away from their competitors through a variety
of ways: Non-price competition, differentiation,
and advertising.
SECTION 1
Highly Competitive Markets
Sellers competing
 Sellers of similar product know that price is
usually the biggest factor in a buyers
decision.
 Since lowering prices means lowering
profits, sellers differentiate their products
from one another by advertising and
focusing on the differences (real or implied)
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SECTION 1
Highly Competitive Markets
Non-Price Competition
 In order to gain more customers, while
maintaining a profitable price, consumer
practice Non-Price Competition such as
Commercial Advertising to increase their
market share.
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