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Bell Ringer January 25 th

Bell Ringer January 25 th. In 4-5 sentences describe what the article was about yesterday. Chapter 7. Market Structures. Perfect Competition. Section 1. Learning Objectives. Describe the four conditions necessary for a perfectly competitive market.

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Bell Ringer January 25 th

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  1. Bell Ringer January 25th In 4-5 sentences describe what the article was about yesterday.

  2. Chapter 7 Market Structures

  3. Perfect Competition Section 1

  4. Learning Objectives Describe the four conditions necessary for a perfectly competitive market. List two common barriers that prevent firms from entering a market Describe the characteristics of perfectly competitive markets.

  5. Perfect Competition • What is it? • A market structure in which a large number of firms all produce the same product • 4 Conditions: • Many buyers (B) and sellers (S) • Identical products • B & S are well informed about products • S enter & exit the market freely

  6. Four Conditions • Many B & S • Everyone must accept market price • Market sets price without influence • Identical Products • No differences • B won’t pay extra for a particular good • Usually a commodity • Gasoline, notebook paper, milk

  7. Four Conditions • Informed B & S • Market provides the B w/ all info about product • Time spent researching = money saved • Don’t research to save 10¢ • Free Entry & Exit of Market • S can enter market when making a profit • S can exit market when not making enough profit

  8. Barriers to Entry • What is it? • Factors that make entering the market difficult • Barriers to Entry lead to Imperfect Markets

  9. Barriers to Entry • 1. Start-up Costs • Expenses a new business must pay before customers can purchase a product • When high – entrepreneurs are less likely to join the market for that product • High start-up costs = imperfect market • 2. Technology • Many markets require high degree of technological know-how • Degrees, training, and required skills keep markets imperfect

  10. Price & Output • Perfect Competition • Highly efficient b/c there are practically no barriers to entry • Prices • Total revenue barely covers cost of production • Output • Because S can’t influence prices, it will cause them to be as efficient as possible – to make more money!

  11. Create a chart that is 5 columns by 6 rows 2nd column heading = Perfect Competition

  12. Recap Many None None None Fruits & Vegetables

  13. Closing With a partner, brainstorm two examples (each) of a product that is sold in a perfectly competitive market. Pick ones that were not mentioned in class! Be prepared to share!

  14. Bell Ringer January 26th What are the two most common barriers to entry? Describe why they are barriers.

  15. Bell Ringer January 30th If you have played the game Monopoly, explain how to win and the purpose of the game. If you have NOT played the game Monopoly, explain the characteristics of the first market structure discussed.

  16. Monopoly Section 2

  17. Learning Objectives Describe characteristics and give examples of monopoly Differentiate between perfect monopolies, natural monopolies and virtual monopolies Understand how price discrimination is established in a market

  18. Monopoly • What is it? • A market dominated by a single seller • Formed when barriers prevent entry • Take advantage of power & charge higher prices

  19. Types of Monopolies • Economies of Scale • Natural Monopoly • Technological Monopoly • Government Monopoly • Franchise/Licenses • Industrial Organizations Create a Chart to compare each type of monopoly (this will be your notes)

  20. Economies of Scale cost output • What is it? • Factors that cause a producer’s average cost per unit to decrease as production rises • Initial costs are usually high • Maintenance costs are usually low • More production = more efficiency • Example: Electricity from a dam

  21. Natural Monopoly • What is it? • Market that runs most efficiently when 1 firm supplies all the output • Government permited • Ensures resources are not wasted • Example: City Water System

  22. Technology & Change • New technology • Sometimes destroys a natural monopoly • Usually reduces barriers • Example: Cell phones v. Land lines

  23. Government Monopolies • Technological Monopolies • What is it? • Monopoly created by the government • Patents • Gives a company exclusive rights to produce goods/services • Allows companies to profit from their own research without competition • Example: Pharmaceutical Companies

  24. Government Monopolies • Franchise & Licenses • What is a Franchise? • The right to sell a good/service within an exclusive market • Contracts set up by govt, schools, & parks to keep small markets under control • Example: Schools create contracts with 1-2 companies to stock vending machines

  25. Government Monopolies • Franchise & Licenses • What is a License? • A government issued right to operate a business • Examples: • Radio & television broadcasting frequencies • One company manages and maintains all public parking lots

  26. Government Monopolies • Industrial Organizations • What is it? • The restriction of firms/businesses in a market • Examples: • National Football League

  27. Price Discrimination (PD) • What is it? • Division of customers into groups based on how much they are willing to pay for a good • Each person has a maximum price • One person might be willing to pay $100;while another might be willing to pay $65. • PD can be practiced by any firm with Market Power

  28. Price Discrimination (PD) • What is Market Power (MP)? • Ability to change prices and output like a monopoly • PD & MP cannot be found in a perfectly competitive market • Examples: • Manufacturer’s rebate offers • Senior citizen discounts • Promotions: Kids eat free on Thursdays

  29. Price Discrimination (PD) • Limits of PD • Must meet 3 conditions in order to work • Some market power (control on price) • Distinct customer groups • Difficult resale • Doesn’t work if it can be resold at a higher price or at a later date • Examples • Theme park admissions, restaurant meal discounts • Wouldn’t work – Concert/event tickets

  30. Recap One None Complete Complete JEA

  31. Closure Choose two types of monopolies we discussed and compare them with the person next to you. Be prepared to share your answers.

  32. Bell Ringer • Make a list of your favorite brands of the following items: • Bread • Soft drinks • Jeans • Athletic shoes Be ready to share

  33. Monopolistic Competition Section 3

  34. Monopolistic Competition • What is it? • A market structure in which many companies sell products that are similar but not identical • Example: denim jeans

  35. Monopolistic Competition • 4 Conditions • Many firms • Few barriers to entry • Slight control over price • Differentiated products • What is Differentiation? • Making a product different from other similar products

  36. Price, Output, and Profits • Prices • Firms have some control over pricing • Higher price than perfect competition • Market offers substitutes – so can’t raise prices as high as a monopoly • Output • Review: Law of Demand states price and output are negatively related (one rises, the other falls) • In between Monopolies and Perfect Competition

  37. Price, Output, and Profit Nonprice Competition • What is it? • A way to attract customers through style, service, or location, but not a lower price • Profit • Monopolistic Competitive companies total revenue is just enough to cover costs of production

  38. Nonprice Competition • Types • Physical Characteristics • Size, color, shape, texture, or taste differences • Location • On main street or in the middle of no where • Service Level • Olive Garden v. Fazoli’s • Advertising, image or status • Jordan t-shirt v. regular plain t-shirt

  39. Recap Many Some Little Low Makeup/ TVs

  40. Oligopoly Section 3

  41. Learning Objectives Describe characteristics of oligopolies Give examples of oligopolies Explain why price wars and cartels are negatively impacting the U.S.

  42. Oligopoly • What is it? • A market structure in which a few large firms (2-4 firms) dominate a market • Barriers to Entry are HIGH

  43. Oligopoly Examples • Soda Pop • Coke, Pepsi, & Dr. Pepper • Television Broadcasting • Walt Disney, CBS, Viacom, Comcast, Hearst, Time Warner, & News Corporation • Wireless Providers • AT&T, Verizon, T-Mobile, Sprint Nextel • Alcoholic Beer • Anheuser-Busch & MillerCoors

  44. Oligopoly • Issues • Price War • Cutting prices very low to win business • Harmful to producers / Beneficial for consumers • Collusion • Agreement among firms to divide the market, set prices, or limit production

  45. Oligopoly • Issues • Price Fixing • Agreement among firms to charge one price for the same good • Caused by collusion • Cartels • Formal organization of producers that agree to coordinate prices and production • Stronger than collusion • Only survive if all members keep to the agreement • Don’t usually last

  46. Recap Few Some Some High Cars/Soda

  47. Draw pictures of productsrepresented in each market ELECTRIC LINES ORANGES MAKEUP SODA

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