MICRO-ECONOMYCS

• MARKET STRUCTURES

  The nature and degree of competition among firms in the same industry
• We classify 5 Market Structures by asking questions like:

  1.How much control over price does each firm have?

  2.How many firms are competing in the market?

  3.How large/what size are each of the firms?

  4.What are the characteristics of the products in each market?

  5.How easy is it for new firms to enter the market?
• 4-5 in Market Structures

  Perfect Competition

  Imperfect Competition

  Oligopoly

  Monopoly

  Monopolistic Competition
• Perfect Competition (meet 5 conditions)

  • Large number of buyers and sellers
  • Buyers and sellers deal in identical products
  • Buyers and sellers act independently
  • Buyers and sellers are well-informed
  • Buyers and sellers are free to enter into, conduct, or get out of business
• Imperfect Competition-

  lacks 1 or more of the 5 conditions
• Imperfect Competition

  • Monopolistic Competition
  • Oligopoly
  • Monopoly
• Monopolistic Competition

  • Has every condition except identical products!
• Monopolistic Competition. These Firms can monopolize a small part of the market by:

  1. Product Differentiation
  2. Non-price Competition
• Product Differentiation –

  make their product seem special through ads
• Non-price Competition -

  use of advertisements, giveaways, promotions to get your business
• Oligopoly

  • Where few very large sellers dominate the industry

  Any firm within this market structure can cause a change in output, sales, or prices
• Must use Interdependent Behavior

  • collusion
  • price wars
• Collusion: 

  • A formal agreement to set prices or limit output, acting as one company
• Price Wars: 

  • When one firm lowers prices other firms will follow in a series of price cuts that result in unusually low prices
• MONOPOLY

  Market Structure

  with only

  1 seller of a

  particular product
• Legal Monopolies

  • NATURAL MONOPOLY
  • GEOGRAPHIC MONOPOLY
  • TECHONOLOGICAL MONOPOLY
  • GOVERNMENT MONOPOLY
• NATURAL MONOPOLY

  • A market situation where costs of production are minimized by having a single firm produce the product
• GEOGRAPHIC MONOPOLY

  • A monopoly based on absence of other sellers (lack of location)
• 2 types of Technological Monopoly

  • Patents
  • Copyrights
• TECHNOLOGICAL MONOPOLY

  • Based on the ownership of a method of production, scientific advance, method or process
• Patents -

  granted by government, exclusive right to

  manufacture, use, or sell any new and useful

  Invention
• Copyrights -

  given to art or literary work and is

  exclusive right of artist to publish, sell, or reproduce

  for their lifetime plus 70 years
• Government Monopoly

  Government owns and operates a monopoly at National, State and Local levels
• DEMAND

  The desire, ability,

  and willingness to

  buy a product or service
• Demand Schedule

  A listing that shows the quantity demanded at all prices.
• Non-Price Determinants of Demand

  1. )Buyer’s Income

  2) Price of Substitutes

  3) Market Size

  4) Consumer Tastes

  5) Consumer Expectations
• Buyer’s Income exmaples

  -Minimum wage increases

  -Economic Recession

  -The Great Depression
• Price of Substitute Goods

  Goods or services that can be used instead of other goods or services, causing a change in demand.
• Consumer Tastes

  The popularity of a good or service has a strong effect on the demand for it, and in the marketplace, popularity can change quickly.
• Consumer Expectations

  What you expect prices to do in the future

  can influence your buying habits today.

  
  

  Examples:

  HD TV’s

  PS3

  Gasoline

  Homes

  Automobiles
• SUPPLY

  The desire, ability, and willingness to offer products for sale
• SUPPLY

  Anyone who offers an economic product for sale is a supplier
• When you work at your job, you are offering your services for sale. 

  Your economic product is labor. You would probably supply more for a higher wage. 
• Law of Supply

  PRICE- INCREASE

  QUANTITY DEMANDED - INCREASE
• Non-Price Determinants of Supply

  1)Number of Products

  2)Input Costs

  3)Labor Productivity

  4)Technology

  5)Government Action

  6)# of sellers

  7)Producer Expectations
• NUMBER OF PRODUCTS

  A successful new product or service always brings out competitors who initially raise overall supply.
• INPUT COSTS

  ¨the collective price of resources that go into producing a good or service, affect supply directly
• LABOR PRODUCTIVITY

  Better trained or more-skilled workers are usually more productive.  Increased productivity decreases costs and increases supply. 
• TECHNOLOGY

  By applying scientific advances to the production process, producers have learned to generate their goods or services more efficiently.
• GOVERNMENT ACTION

  such as taxes or subsidies, can

  have a positive or negative effect on production costs.