UNIT III MARKET STRUCTURES AND BUSINESS ORGANIZATIONS CHAPTERS 7 & 8.

UNIT III

MARKET STRUCTURES AND

BUSINESS ORGANIZATIONS

CHAPTERS 7 & 8

PERFECT COMPETITION

Task 1: Create a bubble map of the characteristics

of perfect competition. Include a visual inside or next to each

bubble. Use pages 192-194 as a reference.

Task 2: Answer the following questions. Use page 195 as a reference.

1. Why are there no truly perfect competitive markets?

2. How is the corn market in the United States like a perfectly competitive market?

3. Why does imperfect competition occur within the corn market?

4. NEXT LEVEL QUESTION – Can you think of another industry or market that comes close to perfect competition? Why is it close? Which characteristics does it lack?

Top half of page

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PERFECT COMPETITION

Perfect competition - ideal model of a market economy; there are five major characteristics

PERFECT COMPETITIONCharacteristic 1: Many Buyers and Sellers

• CUSTOMER CHOICE = LOW PRICES

• Many buyers AND lack of demand will not cause sellers to lower prices

Characteristic 2: Standardized Product

• One producer’s product is identical to another’s

• Price is only basis for consumer choice

PERFECT COMPETITION

Characteristic 3: Freedom to Enter and Exit Markets

• No regulations – FREE MARKET

Characteristic 4: Independent Buyers and Sellers

• NO COLLUSION, NO PRICE FIXING

• Supply and demand set equilibrium price

PERFECT COMPETITIONCharacteristic 5: Well-informed Buyers and Sellers

• Buyers can compare prices

• Sellers know what competitors charge, what buyers willing to pay

• Price taker - seller that accepts a market price that is set by supply and demand

MONOPOLIES

MONOPOLIES

JP Morgan Andrew Carnegie John D. Rockefeller

MONOPOLIES

Characteristic 1: Only One Seller

• Single business controls supply of product without close substitutes

• Ex. De Beers cartel controlled diamond market in 20th century

Can you think of any other examples?

MONOPOLIESCharacteristic 2: A Restricted, Regulated Market

• Government regulations allow single firm to control market

• De Beers worked with South African government

• restricted access of other producers

• controlled supply of diamonds

MONOPOLIES

Characteristic 3: Control of Prices

• Monopolists control prices = no close substitutes

• During economic downturns, De Beers created artificial shortage

In times of shortage, what happens to price?

Cullinan Diamond – 3106.75 carats (S. Africa)

Est. value - $2 billion

MONOPOLIES

Create a short four line rap about the above cartoon. Try to use as many words as you can from the bank at the top of this page.

Word Bank:Trust Price Monopoly Standard Oil Sherman Anti-Trust Control Competition

OLIGOPOLIES

KEY CONCEPTS

• Oligopoly - market structure with only a few sellers offering similar product

• Less competitive than monopolistic competition

• each firm has large market share

• high start-up costs = few firms

OLIGOPOLIES

Characteristic 1: Few Sellers and Many Buyers

• A few firms dominate market• industry is oligopoly if four firms control 40 percent of

market • About half of manufacturing industries in United States are

oligopolies • Ex. breakfast cereals

Can you think of any others?

soft drinks, movies, industrial products

OLIGOPOLIES

Characteristic 2: Standardized or Differentiated Products

• Many industrial products standardized such as glass, aluminum, steel, plastic

• differentiate by brand name, service, location

• Many consumer goods are differentiated • use marketing strategies, such as focus groups,

surveys

OLIGOPOLIES

Characteristic 3: More Control of Prices

• Each firm’s decisions about supply and price affect entire market

• If one firm lowers prices, others probably will too• no firm gains market share from price drop; all risk

losing profits • If one raises prices, others may not in order to gain market

share

OLIGOPOLIESCharacteristic 4: Little Freedom to Enter or Exit Market

• High start-up costs make entry hard

• Established firms have resources, patents, economies of scale

• High investment by firms in oligopoly make exit difficult

• Ex. What if AT&T just shut down?

OLIGOPOLIES

MARKETING ACTIVITY

Task: Create an advertisement demonstrating product differentiation and non-price competition.

• Read page 206 and the top two paragraphs on 207.

• Back of page: Define monopolistic competition, product differentiation and non-price competition. Put your name and period.

• Front of page: Create a full page ad for the business you created last week. It should demonstrate product differentiation and non-price competition. It should also include some sort of visual and color.

GOVERNMENT REGULATION

Acronym Agency Date PurposeExamples of

Responsibilities

FDA Food and Drug Administration

1906 Protects consumers from unsafe foods, drugs and cosmetics; requires truthful labels

Inspects food production facilities, regulates tobacco production, requires labels, educates consumers

FTC Federal Trade Commission

1914 Enforces antitrust laws and monitors unfair business practices, including deceptive practices

Investigates complaints, sues companies that break laws, educates consumers



Responsibilities

SEC Securities and Exchange Commission

1934 Regulates the market for stocks and bonds to protect investors

Investigates complaints, sues individuals and companies that break laws

FCC Federal Communications Commission

1934 Regulates the communications industry, including radio, television, cable and telephone services

Promotes competition, helps to develop infrastructure, ensures public safety.



Responsibilities

EPA Environmental Protection Agency

1970 Protects human health by enforcing environmental laws regarding pollution and hazardous materials

Assesses current environmental conditions, enforces environmental law, environmental planning, etc.

CPSC Consumer and Product Safety Commission

1972 Sets safety standards for thousands of types of consumer products, issues recalls for unsafe products

Investigates claims and reports, sues companies that fail to comply.

MARKET STRUCTURE REVIEWDirections: Write each sentence below; if the statement is true, write the word true next to it. If it’s false, write false and then rewrite the statement below the original statement so that it is true.

1. Monopolistic competition involves many buyers and sellers.

2. An oligopoly has few buyers and sellers.

3. Standardized products are characteristic of monopolistic competition.

4. Differentiated products are characteristic of monopolistic competition but not of monopolies.

5. Very few manufacturing industries in the United States are oligopolistic.

6. Competitors in monopolistic markets use non-price competition.

7. Sellers in an oligopoly have more control over prices than sellers in monopolistic competition.

8. Start-up costs to enter a market ruled by monopolistic competition are about the same as start-up costs to enter an oligopolistic market.

- TRUE

- TRUE

- TRUE

- TRUE

- FALSE

- FALSE

- FALSE

- FALSE

TYPES OF BUSINESS ORGS.

MARKET STRUCTURES

1. Monopoly

2. Oligopoly

3. Perfect Competition

4. Monopolistic Competition

5. Nonprice Competition

6. Standardized Product

7. Deregulation

Once you have completed this answer questions 1 – 8 on page 222.

Define the following terms and explain the

purpose of each.

*Use pages 192-219.

BUSINESS ORGANIZATIONS

1. Partnership

2. Sole Proprietorship

3. Franchise

4. Corporation

5. Bond

6. Limited Life

7. Unlimited Liability

Once you have completed this answer questions 1 – 8 on page 254.

Define the following terms and explain the

purpose of each.

*Use pages 226-251.

UNIT III MARKET STRUCTURES AND BUSINESS ORGANIZATIONS CHAPTERS 7 & 8.

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