Chapter Introduction

Section 1: Competition and

Market
Structures
Section 2: Market Failures
Section 3: The Role of
Government
Visual Summary
A developer has acquired the
large piece of vacant land
across the street from your
house and plans to build a
large shopping mall on the
property. How might you
benefit from the mall? How
might it negatively impact
your life? Read Chapter 7 to
learn about market structures
and economic growth.
1. The profit motive acts as an
incentive for people to produce
and sell goods and services.
2. Economists look at a variety of
factors to assess the growth and
performance of a nation’s
economy.
3. Governments strive for a
balance between the costs and
benefits of their economic
policies to promote economic
stability and growth.
Section Preview
In this section, you will learn that market
structures include perfect competition,
monopolistic competition, oligopoly, and
monopoly.
Content Vocabulary
• laissez-faire • product • natural
differentiation monopoly
• market
structure • nonprice • economies of
competition scale
• perfect
competition • oligopoly • geographic
monopoly
• imperfect • collusion
competition • technological
• price-fixing monopoly
• monopolistic
competition • monopoly • government
monopoly
Academic Vocabulary
• theoretically • equate
What is the incentive for people to
produce and sell goods and
services?
A. Competition
B. Profit motive
C. Can make a better A. A
product B. B
C. C
• Define perfect competition in the business
world?
 Competition and Market Structures
• In 1776, the average factory was small
and businesses were competitive.
Laissez-faire was the economic
philosophy.
laissez-faire
philosophy that government should not
interfere with business activities

• https://study.com/academy/lesson/laissez-
faire-economics-definition-examples.html
Competition and Market Structures
Competition and Market Structures (cont.)
• Economists group businesses into four
market structures.
1. Perfect competition
2. Monopolistic competition
3. Oligopoly
4. Monopoly
Perfect Competition
Perfect competition is an ideal
market situation used to
evaluate other market
structures.
Perfect Competition (cont.)
• Perfect competition—a theoretical ideal
used to evaluate other market structures

Perfect Competition and Profit Maximization

• https://study.com/academy/lesson/perfect-
competition-in-economics-adam-smiths-
invisible-hand.html
• List the three possible advantages of perfect
competition from the customer’s perspective?
• Advantages of Perfect competition
Perfect Competition (cont.)
• Perfect competition has five necessary
conditions:
1. There is a large number of buyers and sellers.
2. Buyers and sellers deal in
identical(homogenous) products.
3. Each buyer and seller acts independently.
4. Buyers and sellers are well informed about
prices and products.
5. Buyers and sellers are free to enter, conduct,
and shut down.
Perfect Competition (cont.)

•Market supply and demand set the product’s

equilibrium price.
• What is meant by price takers?
Perfect Competition (cont.)
• Imperfect competition results in
– Less competition
– Higher prices for consumers
– Fewer products offered
Why do so few perfectly competitive
markets exist?
A. Prices offered are too high
for consumers.
B. Difficult to satisfy all five
A. A
necessary conditions.
B. B
C. Overhead costs are too high C. C
to make it work. D. D

D. Too competitive to be successful

• Solve the exit ticket and mark your attendance
Monopolistic Competition
Monopolistic competition
shares all the conditions of
perfect competition except
the same goods or services.
• https://www.investopedia.com/terms/m/
monopolisticmarket.asp

• https://study.com/academy/lesson/
monopolistic-competition-definition-theory-
characteristics-examples.html
Monopolistic Competition (cont.)
• Under monopolistic competition,
products are similar.
• Monopolistic—seller’s ability to raise the
price within a narrow range
• Competitive—If sellers raise or lower the
price enough, customers will ignore minor
differences and change brands.
Monopolistic Competition (cont.)
• Monopolistic competition is characterized
by product differentiation.
• This is done through nonprice
competition.
Are designer labels really better than
store brand names when it comes to
shoes, clothing, or makeup?
A. Absolutely
B. Sometimes A. A
C. Never B. B
C. C
• Explain why it is difficult for the businesses to
survive in perfect competition?
• Explain how perfect competition benefits the
consumers?
• Solve the exit ticket and mark your attendance
• Task submission?
Oligopoly
Oligopoly describes a market
in which a few sellers
dominate an industry.
• https://www.investopedia.com/ask/answers/
121514/what-are-some-current-examples-
oligopolies.asp
Oligopoly (cont.)
• Oligopoly products may have distinct
features like makes and models in the auto
industry; or products that can be
standardized as in the steel industry.
• Entry and exit in oligopoly is very difficult.
• Explain what is meant by collusion and why it
is usually considered as illegal?
 Collusion

https://study.com/academy/lesson/collusion-in-
economics-definition-examples.html
Oligopoly (cont.)
• Because oligopolies are so large, when
one firm lowers its price or introduces a
new product, other firms follow.
• This interdependent behavior takes the
form of collusion.
– Price-fixing
– Collusion
restrains trade
and is against the
law.
Task on Teams
Perfect Monopolistic Oligopoly
competition competition

Definition

Examples

Products

Buyers and
seller

Entry and exit

• Explain why we don’t have perfect competition
in airline industry?
• Explain why public transportation facility is
provided by RTA only in UAE?
Monopoly
A monopoly is a market with
only one seller for a particular
product.
• https://study.com/academy/lesson/what-is-a-
monopoly-in-economics-definition-impact-on-
consumers.html
Monopoly (cont.)
• Monopoly is at the opposite end of the
spectrum from perfect competition.
• Few real monopolies exist today.
– Americans dislike them.
– New technologies compete with existing
monopolies.

Characteristics of Market Structures

Question :What is the biggest risk associated with
monopolies?
A. A company with a monopoly can pick their customers, even if
they discriminate against someone based on their race, gender, or
religion.
B. The entity with complete market share could increase prices as
high as they wanted, since consumers would have nowhere else to
go.
C. They limit consumer choice, so they are discouraged.
D. Monopolies are typically owned and run by illegal groups like
gangs and mobs, so they provide legal protection to criminal
activities.
 Legal monopolies

• https://study.com/academy/lesson/legal-
monopoly-definition-examples.html
• Types of monopolies:
1. Natural monopoly
2. Geographic monopoly
3. Technological monopoly
4. Government monopoly
 Monopoly (cont.)
• Types of monopolies

– Natural monopoly

• Market structure where average costs of production

are lowest when a single firm exists.
• Government gives a public utility a franchise.
• Economies of scale: Situation in which which the
average costs of production falls as a firm gets larger.
Monopoly (cont.)
• Types of monopolies
– Geographic monopoly- Market structure in which one
firm has a monopoly in a geographic area.
Monopoly (cont.)
• Types of monopolies
– Technological monopoly—
- Monopoly based on a firm’s ownership or control of
production method, process or other scientific advance.
- Government grants a patent or copyright.
Monopoly (cont.)
• Types of monopolies
– Government monopoly- A monopoly owned and
operated by the government.
Compared to an oligopoly industry,
what kind of prices do consumers in
a monopoly pay?
A. Higher
A. A
B. Lower
B. B
C. The same
C. C
Market Structures We can differentiate among four
different market structures. One is called perfect
competition; the other three are different kinds of
imperfect competition.
 Task in Google classroom

• Write a fictional story describing a futuristic

society in which there is one university, doctor
and grocery store- infact there is one of
everything. Your stories should focus on how
living among such monopolies will impact the
daily lives of individuals.
laissez-faire
philosophy that government should
not interfere with business activities
market structure
nature and degree of competition
among firms in the same industry
perfect competition
market structure with many well-
informed and independent buyers and
sellers who exchange identical
products
imperfect competition
market structure that does not meet
all conditions of perfect competition
monopolistic competition
market structure that meets all
conditions of perfect competition
except identical products
product differentiation
real or imagined differences between
competing products in the same
industry
nonprice competition
sales strategy focusing on a product’s
appearance, quality, or design rather
than its price
oligopoly
market structure in which a few large
sellers dominate the industry
collusion
agreements, usually illegal, among
producers to fix prices, limit output, or
divide markets
price-fixing
agreement, usually illegal, by firms to
charge the same price for a product
monopoly
market structure with a single seller of
a particular product
natural monopoly
market structure where average costs
of production are lowest when a
single firm exists
economies of scale
situation in which the average cost of
production falls as a firm gets larger
geographic monopoly
market structure in which one firm
has a monopoly in a geographic area
technological monopoly
monopoly based on a firm’s
ownership or control of a production
method, process, or other scientific
advance
government monopoly
a monopoly owned and operated by
the government