Download Chapter 7 - Humble ISD

Chapter 7
Section 1
Perfect Competition

Perfect competition exists
with these 5 conditions:

Large number of buyers and
sellers

Products should be identical

Buyers and sellers should act
independently

Buyers and sellers should be
well-informed

Buyers and sellers should be
free to enter, conduct or get
out of business.


Under perfect competition,
supply and demand set the
equilibrium price, and each
firm sets a level of output that
will maximize its profits at
that price.
Imperfect competition-the
absence of one of the 5
conditions.
Monopolistic Competition



MC meets all conditions of perfect
competition except for identical
products
MC use product differentiation-the
real or imagined differences
between competing products in
the same industry.
MC use non-price competitionadvertising, giveaways, or other
promotions to differentiate their
products from other products in
the market.
Oligopoly

Oligopoly is a market structure in
which a few very large sellers
dominate the industry. Ex: Soda;
cereal; cars

Oligopolists act interdependently
by lowering prices soon after the
first seller announces the cut, but
typically they prefer non-price
competition

Oligopolists may all agree
formally to set prices, called
collusion, which is illegal.

Oligopolists can engage in
price wars, pushing prices
lower than the cost of
production for a short time.
Monopoly

Monopoly is a market
structure with only one seller
of a particular product

US has few monopolies
because we prefer
competitive trade
Types of Monopolies




Natural-a single firm producing a
product or service to minimize costs
(public utilities)
Geographic-occurs when a location
cannot support more than 1 business
(small town)
Technological-a producer has exclusive
rights through patents or copyrights.
Government-occurs when the gov’t
provides goods/services because the
public cannot. (nuclear weapons)
 The
monopolist is a
price maker.