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Market Structure
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market classification according to number and size of firms, type of product, and type of competiton
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Market Structure
market classification according to number and size of firms, type of product, and type of competiton
Pure Competition
a theoretical market structure that requires a very large number of buyers/sellers, identical products, and freedom of entry/exit
Industry
group of firms producing similar or identical products
Perfect Competition
theoretical market structure characterized by a large number of well-informed independent buyers and sellers who exchange identical products and have freedom of entry and exit
Monopolistic Competiton
market structure having all conditions of pure competition except for identical products; a form of imperfect competition
Product Differentiation
real or imagined differences between competing products in the same industry
Nonprice Competition
competition based on a product's appearance, quality, or design, rather than its price
Oligopoly
market structure in which a few large sellers dominate the market and have the ability to affect prices in the industry; form of imperfect competition
Collusion
illegal agreement among producers to fix prices, limit output, divide markets, or otherwise agree to reduce competition
Price-fixing
illegal agreement by firms to charge a uniform price for a product
Monopoly
market structure characterized by a single producer; form of imperfect competition
Laissez-faire
philosophy that government should not interfere with business activity
Natural Monopoly
market structure in which average costs of production are lowest when all output is produced by a single firm
Geographic Monopoly
market structure in which a firm has a monopoly because of its location or the small size of the market
Technological Monopoly
market structure in which a firm has a monopoly because it owns or controls a manufacturing method, process, or other scientific advantage
Government Monopoly
monopoly created and/or owned by the government
Market Failure
condition where any of the requirements fora competitive market — usually adequate competition, knowledge of prices and opportunities, mobility of resources, and competitive profits — leads to an inefficient allocation of resources characterized by too much or too little being produces
Public Good
economic products that are consumed collectively, such as highways, national defense, police and fire protection
Spillover Effects
uncompensated side effects that either benefit or harm a third party not involved in the activity that caused it
Externalities
uncompensated side effects that affect an uninvolved third party
Cost-benefit Analysis
calculation that compares the cost of an action to its benefits
Trusts
illegal combination of corporations or companies organized to hinder competition
Price Discrimination
practice of charging different customers different prices for the same product
Cease & Desist Order
ruling requiring a company to stop an unfair business practice that reduces or limits competition
Economics of Scale
increasing efficient use of personnel, plant, and equipment that lowers the average cost of a production as a firm becomes larger
Public Disclosure
requirement forcing a business to reveal information about its products or its operations to the public
Mortgage
legal document that pledges ownership of a home to a lender as security for repayment of borrowed money
Foreclosure
process in which a lender reclaims the property due to a lack of payment by the borrower
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Markets are often described by the number of firms and amount of competition in them
What are the three necessary conditions for a pure competition market? What are the extra fourth and fifth conditions?
1. Very large numbers: there must be a large number of buyers and seller, none of which is large or powerful enough to affect the price
2. Identical products: buyers and sellers deal in identical products, there is no difference in products
3. Freedom of entry and exit: buyers and sellers are free to enter into, conduct, or get out of business
(4. Percent knowledge by all buyers and all sellers of all conditions in the market)
(5. Perfect mobility of resources)
Is the pure competitor market a price seller or taker? Why?
The competitor market is called a price taker, because the price is determined in the market and each firm by itself is too small to influence the market price.
A firm would continue to expand its output as long as what?
A firm would continue to expand its output as long as the marginal cost of producing one mor unit of output is less than the marginal revenue from the sale of that output.
When is the profit-maximizing quantity of output found?
The profit-maximizing quantity of output is found where the marginal cost of production is equal to the marginal revenue from sales (MC = MR)
What does it mean if a market structure lacks one of the five conditions required for pure completion?
The market will be less competitive, such as monopolistic competition, oligopoly, and monopoly. This means firms will supply lower quantities of their products and charge higher prices.
How many number of sellers are in a perfectly competitive market?
Many
How many number of sellers are in a monopolistic competitive market?
Many
How many number of sellers are in a oligopolistic market?
Few
How many number of sellers are in a monopolistic market?
One
What type of product is in a perfectly competitive market?
Homogeneous (look the same)
What type of product is in a monopolistic competitive market?
Differentiated (look different)
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