Perfect Competition 3.7

What are the two extremes of market structures in microeconomics?

Perfect competition and monopoly.

In perfect competition, how are prices determined?

Prices are determined solely by supply and demand.

What is a monopoly?

A market structure where a single firm dominates the market, controlling prices and supply.

What are market failures?

Situations where resources are not allocated efficiently, resulting in a net loss in economic value.

What can cause market failures?

Factors such as externalities, public goods, and imperfect information.

What are externalities?

Effects of individual or firm actions on third parties that are not reflected in market prices, which can be positive or negative.

What are public goods?

Goods characterized by non-excludability and non-rivalry, leading to challenges in their provision through private markets.

What is the role of government in response to market failures?

Government may intervene through regulation, provision of public goods, and addressing externalities with taxes or subsidies.

Why is government intervention necessary in market failures?

To improve efficiency and equity in the market.

What is a potential outcome of a monopoly?

Inefficiencies and a loss of consumer welfare.