Principles Of Economic

Principles of Economics 2nd 2nd edition edition by by Fred Fred M M Gottheil Gottheil prepared by Azhar Rind

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Chapter Chapter 10 10

Identifying Markets and Market Structures

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This This chapter discusses principles principles associated associated with with The Use Characteristics of Cross Elasticity of The The Relationship Characteristics between of Characteristics of Monopoly The Market Role of Structures Advertising Perfect toIndustries, Define Competition Markets Firms, Monopolistic Competition and Markets INSTITUTE OF MODERN SCIENCES AND ARTS HYDERABAD, PAKISTAN

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What What is is aa Relevant Relevant Market? Market?

The set of goods whose cross elasticities with others in the set are relatively high and whose cross elasticities with goods outside the set are relatively low INSTITUTE OF MODERN SCIENCES AND ARTS HYDERABAD, PAKISTAN

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What What is an example of a Relevant Relevant Market? Market? In 1953 DuPont was ruled to be in the flexible packaging market and not exclusively in the cellophane market INSTITUTE OF MODERN SCIENCES AND ARTS HYDERABAD, PAKISTAN

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What What determines determines if goods are are in in the the same same market? market? If their cross elasticity is 3 or greater they are considered to be in the same market INSTITUTE OF MODERN SCIENCES AND ARTS HYDERABAD, PAKISTAN

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What What determines determines Market Market Structure? Structure? A set of market characteristics such as number of firms, ease of entry, and substitutability INSTITUTE OF MODERN SCIENCES AND ARTS HYDERABAD, PAKISTAN

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What What is is considered considered an an Industry? Industry? A collection of firms producing the same good

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What What are the four four types types of markets? markets? Monopoly Oligopoly Monopolistic Competition Perfect Competition INSTITUTE OF MODERN SCIENCES AND ARTS HYDERABAD, PAKISTAN

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What What is is aa Monopoly? Monopoly? A market structure with only one firm producing goods that have no substitutes and impossible barriers of entry into the market INSTITUTE OF MODERN SCIENCES AND ARTS HYDERABAD, PAKISTAN

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What What is is aa Natural Natural Monopoly? Monopoly? A market structure that cannot support more than one firm INSTITUTE OF MODERN SCIENCES AND ARTS HYDERABAD, PAKISTAN

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Why Why would would aa market market structure structure not not support support more more than than one one firm? firm? The fixed cost in setting up production are so high the firm must have access to a large market to have a low average cost curve INSTITUTE OF MODERN SCIENCES AND ARTS HYDERABAD, PAKISTAN

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What What are are other other reasons reasons for for Monopoly? Monopoly?

• The acquiring of an exclusive right to a nonreproducible resource • Government protection • Buy the competition INSTITUTE OF MODERN SCIENCES AND ARTS HYDERABAD, PAKISTAN

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What What is is an an example example of of Government Government protection? protection? The granting of a patent

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What What is is aa Patent? Patent? A monopoly right to the use of a specific new technology or the production of a new good INSTITUTE OF MODERN SCIENCES AND ARTS HYDERABAD, PAKISTAN

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Why Why grant grant Patents? Patents? To encourage inventions and innovations

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http://www.uspto.gov/ http://www.patentspending.com http://www.idresearch.com http://www.napp.org/ http://www.nationalpatent.com INSTITUTE OF MODERN SCIENCES AND ARTS HYDERABAD, PAKISTAN

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What What is is Monopolistic Monopolistic Competition? Competition? A market structure consisting of many firms producing goods that are close substitutes and entry into the market is relatively easy INSTITUTE OF MODERN SCIENCES AND ARTS HYDERABAD, PAKISTAN

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What What is is Oligopoly? Oligopoly? A market structure consisting of a few firms producing goods that are close substitutes and entry into the market is difficult INSTITUTE OF MODERN SCIENCES AND ARTS HYDERABAD, PAKISTAN

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What What is is Product Product Differentiation? Differentiation? The physical or perceived differences among goods in a market that makes them close substitutes INSTITUTE OF MODERN SCIENCES AND ARTS HYDERABAD, PAKISTAN

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How How do do Pepsi Pepsi & Coca-Cola differentiate differentiate themselves? themselves? http://www.pepsi.com http://www.cocacola.com INSTITUTE OF MODERN SCIENCES AND ARTS HYDERABAD, PAKISTAN

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What What is is Brand Brand Loyalty? Loyalty? The willingness of consumers to continue buying a good at a price higher than the price of its close substitutes INSTITUTE OF MODERN SCIENCES AND ARTS HYDERABAD, PAKISTAN

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What What is is Market Market Share? Share? The percentage of total market sales produced by a firm in a market

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How How do do American American Automobile Automobile Companies advertise advertise on on the the net? net? http://www.chrysler.com http://www.gm.com http://www.ford.com INSTITUTE OF MODERN SCIENCES AND ARTS HYDERABAD, PAKISTAN

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What What happens happens to to the the demand demand curve curve as as more more firms firms enter enter the the industry? industry? It becomes more elastic

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P

M or M oe rIe neEl lasast ticic D D INSTITUTE OF MODERN SCIENCES AND ARTS HYDERABAD, PAKISTAN

Q

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What What happens happens when when a firm effectively effectively advertises? The demand curve becomes more inelastic

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P

M oMr eoIr nee El lasast tic ic D D INSTITUTE OF MODERN SCIENCES AND ARTS HYDERABAD, PAKISTAN

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What What is is Perfect Perfect Competition? Competition?

A market structure consisting of a large number of firms producing goods that are perfect substitutes and entry into market is easy INSTITUTE OF MODERN SCIENCES AND ARTS HYDERABAD, PAKISTAN

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Can Can a Perfectly Competitive Competitive firm firm influence the market price? the market price? No! The firm is so small compared to the total market that it has no influence over the price INSTITUTE OF MODERN SCIENCES AND ARTS HYDERABAD, PAKISTAN

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Does Does the the Perfectly Perfectly Competitive Competitive Firm Firm have have to to sell sell at at the the market market price? price? It can sell all units it brings to market at the market price but will not sell one unit at a higher price INSTITUTE OF MODERN SCIENCES AND ARTS HYDERABAD, PAKISTAN

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What What does does the the Demand Demand Curve Curve look look like like for for aa Perfectly Perfectly Competitive Competitive Firm? Firm? It is perfectly horizontal at the market price INSTITUTE OF MODERN SCIENCES AND ARTS HYDERABAD, PAKISTAN

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The Firm’s Demand Curve in Perfect Competition P

D

S

Market quantity

P

d Individual quantity 33

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What is a Relevant Market? What is a Monopoly? What is a Natural Monopoly? What is a Patent? What is Monopolistic Competition? What is Oligopoly? What is Perfect Competition? 34

END ©1999 South-Western College Publishing

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