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Economics 101

Economics 101. By: Serenity Hughes. Imperfect Competition. The markets for many important products are dominated by a small number of very large firms. Imperfectly Competitive markets with one or only a few suppliers. Objective- maximize their economic profits. Downward sloping curve

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Economics 101

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  1. Economics 101 By: Serenity Hughes

  2. Imperfect Competition • The markets for many important products are dominated by a small number of very large firms.

  3. Imperfectly Competitivemarkets with one or only a few suppliers Objective- maximize their economic profits. Downward sloping curve MARKET POWER- firms that face a downward sloping demand curve. They have the ability to choose market prices instead of taking prices as given.

  4. Monopoly • An extreme situation of a single supplier.

  5. Barriers to Entry- prevent competitors from entering the market • 1. The Ownership of a Key Resource • 2. Government- Created Monopolies • 3. Natural Monopolies

  6. Dealing with monopolies • Sherman Anti-Trust Act of 1890- an act passed to reduce the impact of monopoly. • Increase Market Competition WHAT CAN THEY DO???? • Large mergers and acquisitions must be reviewed by government regulators • Break up companies

  7. Price Discrimination- charging different customers with different prices. • By changing different prices- the marginal revenue curve would be identical to the market demand curve, and it would choose to supply a quantity equivalent to the competitive market outcome. Price discrimination (PD) further increases monopoly to capture a greater fraction of the benefits produced by each transaction. PD increases social welfare by moving the market closer to the socially efficient quantity.

  8. Oligopoly • Market with only a few sellers • Downward sloping demand curve Cartel- an agreement to cooperate and behave like a monopolist so total industry profits canbemaximized= illegal in US.

  9. Imperfect Competition- Monopolistic Competition • MC- combine aspects of the perfectly competitive and monopoly models. • Downward sloping demand curve due to the product of each firm being differentiated.

  10. Market Failure • Competitive markets will fail to produce socially desirable outcomes. • 1. Externality- arises when the actions of one person affect the well being of someone else, but neither party pays nor is paid for these effects. • BENEFICIAL- POSITIVE EXTERNALITY • CAUSES HARM- NEGATIVE EXTERNALITY

  11. Externalities cont. • There will be too little of an activity that generates positive externalities and too much of an activity that generates negative externalities.

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