Mic and Mac Econ

• The law of demand states that as the price of a good increases, consumers will buy less of it.
• Monopoly - a market situation where there is only one buyer of good and service
• Oligopoly - a market structure with few sellers
• Perfect competition - a market structure characterized by many buyers and sellers who are all small relative to the size of the entire market
• Market


  Place where buyers and sellers are exchanging goods and services
• Perfect or pure market


  Market situation which consists of a very large number of buyers and sellers offering a homogeneous product
• Imperfect market


  Market situation wherein the conditions necessary for perfect competitions are not satisfied
• Types of imperfect markets

  • Monopoly
  • Monopolistic competition
  • Oligopoly
• Perfect competition


  • Firm is a price taker
  • Firm has no power to influence the market through its own individual actions
• Conditions for perfect competition


  • Large number of sellers, each acting independently and not colliding with any other
  • Selling a homogeneous product
  • Absence of government and artificial restrictions placed upon price or quantity
  • Free entry and exit
  • All buyers and sellers have perfect knowledge of market conditions and any changes
• Pure competition


  Market situation where all the conditions for perfect competition are satisfied except for perfect knowledge
• Short-run analysis of perfect competition


  Firm maximizes profits by producing at the level of output where MR = MC
• In the long-run, all firms in the market produce goods at the lowest point of the LAC curve
• Monopoly


  Market situation with only one seller of goods and services
• Sources of monopoly


  • Only one producer or seller in the market
  • New firms find extremely difficulty in entering the market
  • No available or close substitute
  • Controls the total supply of raw materials
  • Owns a patent or copyright
  • Operates under economies of scale
• Types of monopoly

  • Natural monopoly
  • Legal monopoly
  • Coercive monopoly
• Long-run analysis of monopoly


  Monopolist earns profit where P = LMC and SAC = LAC
• Monopolistic competition


  Market situation with many sellers producing highly differentiated products
• Essential characteristics of monopolistic competition


  • Large number of buyers and sellers acting independently
  • Limited control of price due to product differentiation
  • Sellers offer differentiated or similar but not identical products
  • New firms can enter the market easily
  • Competition focuses on price, product variation and promotion
• Short-run analysis of monopolistic competition


  Firm maximizes profits by producing at the level of output where MR = MC
• Monopolistic competition


  A market situation where there are many sellers producing differentiated or similar but not identical products
• Oligopoly


  A market situation where there is a small number of sellers, each aware of the actions of the others
• Characteristics of an oligopoly


  • Small number of firms selling differentiated or identical products
  • Firms have control over price due to small number of suppliers
  • Extreme difficulty for new competitors to enter the market
• Types of Oligopoly


  • Pure oligopoly (few sellers of identical/homogeneous products)
  • Differentiated oligopoly (few sellers of differentiated products)
  • Duopoly (two producers in the market)
• Types of Organization of Oligopoly

  • Cartel (formal agreement among oligopolists to set monopoly price, allocate output, share profits)
  • Collusion (secret cooperation to limit competition, often illegal)
• Monopsony


  A market situation where there is only one buyer of goods and services
• Oligopsony


  A market situation where there are a small number of buyers while the number of sellers could be large
• Summary of Different Market Structures


  • Perfect Competition
  • Monopolistic Competition
  • Oligopoly
  • Monopoly