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Economics Chapter Seven Lecture Notes

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Luis Perez

on 2 November 2016

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Transcript of Economics Chapter Seven Lecture Notes

I. Perfect Competition
A. Perfect Competition is when a large number of buyers and seller exchange identical products under five conditions.
3. Buyers and sellers should act independently.
Economics Chapter Seven Lecture Notes
III. Oligopoly
C. Oligopolists act interdependently by lowing prices soon after the first seller announces the cut, buy typically they prefer non price competition because their rivals cannot respond as quickly.
A. Oligopoly is a market structure in which a few very large sellers dominate the industry.
II. Monopolistic Competition
1. There should be a large number of buyers and sellers.
2. The products should be identical.
4. Buyers and sellers should be well-informed.
5. Buyers and sellers should be free to enter, conduct, or get out of business.
B. Under perfect competition, supply and demand set the equilibrium prices, and each firm sets a level of output that will maximize its profits at that price.
C. Imperfect competition refers to market structures that lack one or more of the five conditions of perfect competition.
A, Monopolistic competition meets all conditions of perfect competition except for identical products.
C. Monopolistic competitors use non price competition, the use of advertising, giveaways, or other promotional campaigns to differentiate their product from similar products in the market.
D. Monopolistic competitors sell within a narrow price range but try to raise the price within that range to achieve profit maximization.
B. Oligopoly is further away from perfect competition (freest trade) that monopolistic competition.
D. Oligopolists may all agree formally to set prices, called collusion, which is illegal (because it restricts trade).
E. Two forms of collusion include
1. Price-fixing, which is agreeing to charge a set of price that is often above market price.
2. Dividing up the market for guaranteed sales
F. Oligopolists can engage in price wars, or a series of price cuts that can push prices lower that the cost of production for a short period of time.
G. Oligopolists final prices are likely to be higher than under monopolistic competition and much higher than under perfect competition
IV. Monopoly
A. Monopoly is a market structure with only one seller of a particular product.
B. The United States has few monopolies because Americans prefer competitive trade, and technology competes with existing monopolies.
C. Natural monopoly occurs when a single firm produces a product or provides a service because it minimizes the overall cost (public utilities)
D. Geographic monopoly occurs when the location cannot support two or more such businesses (small town drugstore).
E. Technological monopoly occurs when a producer has the exclusive right through patents or copyrights to produce or sell a particular product (an artist's work for his lifetime plus 50 years).
F. Government monopoly occurs when the government provides products or service that private industry cannot adequately provide (uranium processing)
G. The monopolist is larger than a perfect competitor, allowing it to be the price maker versus the price taker.
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