Look at the words for 2 minutes

When I take them away, write down as many as you can remember in one minute

•cat, dog, bird, fish, school, teachers, pepper, relax, bed, music, song, dance, hamburger, french fry, happy meal, paper, pencil, forest, trees, sun, moon, stars, carpet, house, breakfast, lunch, dinner

Wednesday, April 17, 2013

Chapter 6: The Good That Competition DoesPages 105-116

•Healthy Competition•Perfect Competition•Monopolies•Monopolistic Competition•Oligopolies

Think question

•1. In what sort of contests do you normally compete? Do you think that competition is enjoyable for its own sake? Why or why not?

•Where individuals are free to make their own choices, competition is a way of life for most people.• The motive is that we

all have an inborn desire to improve our situation

• The goal of competition for producers is to improve the quality of goods and lower their prices

Please listen as I read pages 106-107

Think Question • 4. Hesiod was cheated out of his

inheritance by his brother Perses, who bribed judges to award the whole of their father’s little estate to himself. Here is an instance of the “evil competition” that Hesiod condemned. Can you suggest other examples of unfair competition?

6.2 Perfect Competition•How does competition among producers increase the variety of goods while lowering their prices?

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• If there were no competition, no markets would exist for the exchange of goods• As producers compete

for customers, they are constantly searching for ways to distinguish his product from similar products that other producers are selling.

Industries • Within a free economy, there are numerous industries, or groups of firms that produce similar products or provide similar services

• Think question • 6. List five industries in which you, your family

or close friends work. In which ones does the most competition occur? Place these industries in order of importance.

• The purest form of competition is called perfect competition• In order for an industry’s market to be perfectly competitive, it must have each one of the following 5 characteristics…

5 characteristics of perfect competition• 1. Must be a large number of

independent sellers within an industry for whose goods exists a vast demand

5 characteristics of perfect competition

• 2. There must be a large number of independent buyers wishing to purchase the industry’s goods

5 characteristics of perfect competition• 3. The industry must be one in which all firms

produce a standardized product. When there is virtually no difference among the goods available for sale, consumers make their purchases based solely on price and not on any product differentiation.

How many types of apples can you recall being sold in the store?

5 characteristics of perfect competition

• 4. Firms must have free access to the market. They must be easily able to enter or exit the market as the see fit, without having to face any significant obstacles.

5 characteristics of perfect competition

• 5. Relevant market information must be made available to all firms and buyers. Everyone in the market knows what prices firms are charging and what prices consumers are paying.

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6.3 Monopolies• If you are familiar with the board game

Monopoly, you know that the object of the game is to gain as much property as possible.

• If you were to get all four railroads and establish a monopoly, you can charge much more than he could if the railroads were divided among competitors.

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• A monopoly is the situation that arises when a singe firm is the only supplier of a good for which no substitutes exists.

• Under a monopoly, which economists call a form of imperfect competition, there is no competition at all.

• There are some “dangers” that arise when an industry is dominated by a single entity. If there is no competition, it can charge the highest possible price buyers are willing to pay.

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Necessary for a Complete Monopoly

• A firm must be the sole supplier of a good or service. Even if only 2 there will still be competition.

• There must be no close substitutes for the firm’s product.

• Entry into the market must be blocked. Competitors must be kept from entering the market by a legal, economical, technological, or some other kind of block.

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Not only bad• Governments often grant legal monopolies in

certain areas in order to encourage production. Maybe in the form of patents, trademarks, or copyrights, which are necessary to help an individual or a business protect investments.

• Also, a market may be dominated by a natural monopoly, which occurs when a single firm can fill the demand for a good more efficiently than if there were multiple firms. Electric companies are an example in some cities.

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Think Question

• 10. Can you think of a company that is a monopoly where you or your family does business? If one of those monopolies were to suddenly double its prices, what could your family do about the matter.

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6.4 Monopolistic Competition

• In this, the market is one in which each firm promotes a differentiated product.

• Because they are not exactly the same, firms do have some control over the prices they set.

• They do not usually make long-term profits, sometimes just break even.

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Three Characteristics of Monopolistic CompetitionMonopolistic Competition

• There must be a large number of firms in the market.

• These firms provide differentiated products. Each firm in the industry provides a product that is a close, but not perfect, substitute for the products provided by other firms in the market.

• Firms are able to easily enter or exit the market.

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• How is the shampoo aisle an example of this monopolistic competition?

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• Consumers have a choice of a wide array of shampoos, each of which is packaged, promoted, and priced differently. Some promise to strengthen hair, others pledge to build body, or claim to bring out natural highlights.

• Prices range from generic to expensive. The main purpose is to clean hair but producers have carved out their own niche in the market.

• Those who believe in the higher quality will pay more but some people don’t care and will pay less because of the no-frills product.

• However, if the generic does a poor job, they will look for a better shampoo, even if it costs more.

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Think question

• 13. If you intended to buy a new bedspread (or a product you care about), where would you look? What sort of stores might you visit? How might you select a spread without going to any shop? Show how “shopping around” by potential buyers promotes competition.

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Oligopolies• A market that occurs

when an industry is dominated by only a few firms.

• Choices made by one firm directly affect the choices made by all the other firms in the industry.

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Characteristics

• There are only a few firms in the entire industry.

• Firms in a oligopoly may sell products that are either differentiated or virtually the same.

• Potential firms are discouraged by the existence of significant entry barriers. These barriers may stem from legal, economic, or technical sources.

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Explain Question

• 8. Why do Americans tend to be naturally suspicious of markets what are run by a monopoly or oligopoly? Are these concerns always well grounded?