Various Class Notes on Economic Topics

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TYPES OF MARKETS STRUCTURES: Perfect competition = Pure Competition Monopolistic Competition Oligopoly Monopoly Perfect Competition =- Dosesn't exist Characteristics: Large # of buyers and sellers Homogeneous Product = products have to be the same Perfect Knowledge = all buyers and all sellers know what each are doing Free entry and exit = these people can leave or enter market whenever One price Resources are mobile. Short Run = not enough time for people to make changes Long Run = time to make changes the supply curve is the marginal cost curve above the demand curve Decreasing Cost = type of market people would like to be in. Expansion in numbers, reduction in input costs. Constant Cost = Page 577, constant return Increasing Cost = example, Bus Lines MONOPOLY = a market structure example, Northeast Utilities Characteristics: No Close Substitutes Inelastic product One seller, many busyers little knowledge high barriers to enter and leave market resources are not mobile. must be a necessity Problem with Monopolies Monopolies tend to misalocate resources Not as efficient = monopolies work where MC = MR Monopolies will not produce as much as consumer wants Monopolies lack incentives, no competition Ways of Controling Monopolies Regulate Break it up Taxes Good Points of Monopolies Average cost is lower and passes on to the consumer May be the only rational way to offer a product Cartels = example: OPEC - a monopoly, outside of the US Control, deals in a natural resource. Natural monopoly = as you increase your volume - your cost of production goes down, the savings should be passed onto the consumer. Types of Monopolies: Strategic Monopoly = a company that controls a particular input in a product Natural = based on economies of scale Trade Secret = no time limit - because you have not declared a patent. if someon gets your secret, and get a patent for it, you are out of luck. Patent Monopolies = patent on a product lasts for 17 years. regulated Monopolies = govt give the company the right to be a monopoly, examplet Gas and Electric companies. But the Govt reserves the right to control your business. Govt allows you to make a FAIR RATE of RETURN. OLIGOPOLY = just a few firms are oligopolies Characteristics: Few sellers - many buyers Interdependence --very interested in what others are doing Barriers to enter and exit Price is not important Market share IS important. The last thing a Oligopoly wants is a price war Not will to compete in price, more willing to compete for the market share. Oligopolies use a lot of advertising They will follow a price decrease. A price drop will cause a KINED DEMAND CURVE, page 627 Concentration ratio = sum of the largest 5 firms in sales divided by sum of all the companies.
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