Professional Documents
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Chapter 4
Chapter 4
Chapter 4
Ex: Auto industry, cable television, and commercial air travel Oligopoly
Oligopolistic markets are often characterized by complex product differentiation, Supply and demand
significant barriers to entry and a high level of influence on prices
Demand is inelastic
set below the equilibrium price P produces a shortage AB since at price M, quantity
A market has only one producer B is demanded but only quantity A is supplied. However quantity A could be fully
Ex: Microsoft and Windows, DeBeers and diamonds, your local natural gas company Monopoly utilized by purchasers who willing to pay price Z, so a black market maybe created
Usually subject to control by government or a government agency.
to divert production to consumers at this price
A monopoly can set its own price in the marketplace, which can result in what
economists refer to as 'super-normal profits’.
A perfectly competitive market has many firms producing the same (i.e.
homogeneous) goods or services.
The term 'imperfect competition' applies to any market that is not perfect
Imperfect competition
Ex: Supermarket Ex: The government may set a maximum price of bread of £1 – or a maximum price
of a weekly rent of £150
Few barriers to entry or exit
Monopolistic competition Type of price mechanism set above the equilibrium price P produces a surplus AB since at price M, quantity B
Ex: Restaurants, cereal, clothing, shoes, and service industries in large cities Monopolistic competition arises when the market comprises many producers who
is supplied but only quantity A is demanded. Government thus can also set a limit to
tend to use product differentiation to distinguish themselves from others.
production quota or they can buy the excess and export it or the suppliers just have
to sell at less than the quantity B
A minimum price
Ex: Price floors in agricultural product markets (big thing in the European Union)