Lesson 7

Perfect competition

In this market, all companies sell the same product at about the same price, with price fluctutations being rare.

A Market structure that contains many companies. Each company has little influence over the market. There’s a lot of competition within this market because it has few barriers to entry.

Monopolistic Competition

Can sell products that are similar but feature slight differences. This allows them to have a small amount of market power based on how they differentiate products.

Combines aspects of Monopoly and Competitive Market. Features many sellers, meaning that it’s easy to enter the industry.

Oligopoly

Contains a few large sellers that sell to many consumers. It’s challenging to enter the industry because of factors like high startup costs and patents, but an oligopoly is easier to enter than monopoly.

Each company has enough market power for its actions to affect its competitors.

Monopoly

Only one company serves a large market.

A single company sells a product that’s unique and unavailable anywhere else

Lack of competition because of entry barriers like high startup costs, limited resources, and patents.

Externalities and Public Goods

Important examples of market failure

Market Failure

Situations where decentralized market outcomes do not produce an efficient allocation of resources

Externalities

effects of one person/firm’s actions on others who are not directly involved in the transaction

Public goods

goods characterized by non-rivalry and non-excludability, creating a free-rider problem.

Negative production externality

occurs when an economic activity imposes a cost on others

Positive Production Externality

occurs when an economic activity provides benefits to people who are not directly involved in the transaction.

Non-rivalry

one person’s consumption does not significantly reduce the amount available to others

Non-excludability

difficult or costly to prevent people from benefitting from the good once it is provided

Free-rider problem

one of the most important concepts associated with public goods is this. A person is a ____ when they receive the benefits of a good without paying their share of its cost