AP Microeconomics

1
AP Microeconomics

• Warm Up What is the level of competition in each
  of these products industries?

2
Analyzing Products

• In Your Notebooks for each product answer
• How much competition does this company have in
  its industry?
• How much advertising does this company do?
• What type of control does this company have over
  the price of its product?
• How easy would it be for a new company to compete
  against this company?

3
The Competitive Spectrum

• There are five basic market structures present in
  our market economy. The type of structure in
  which a firm operates dictates to it
• the type of products it produces
• the prices it charges
• how much it will advertises
• and many other things that may not be so obvious.

4
The Competitive Spectrum

• It would be nice to think of all markets as
  perfectly competitive, as we have discussed
  before. However, they are not. Remember that we
  will study the behavior of firms as though they
  are operating in perfectly competitive markets
  even though 99 of all firms operate in markets
  that are not. Also, remember that we do it that
  way because it makes it easier for us to examine
  the behavior of firms without also having to
  evaluate any outside variables at the same time.
  That would be too confusing.

5
Market Structures
Perfect Competition
of Firms (competitors)
Type of Product
Ease of Entry into market
Control over Price
Advertising
Industry Examples
Many, small firms
Identical
Easy entry compete
No Control price-taker
No need, unless cooperative
Fruits, vegetables, food
6
Market Structures
Monopolistic Competition
of Firms (competitors)
Type of Product
Ease of Entry into market
Control over Price
Advertising
Industry Examples
Many firms
Similar
Easy entry compete
No market control, but individual control
TONS, gain consumer loyalty
Shampoo, clothes
7
Market Structures
Oligopoly
of Firms (competitors)
Type of Product
Ease of Entry into market
Control over Price
Advertising
Industry Examples
A Few Large Firms
Similar
Hard to enter compete
Some Control with collusion cons. loyalty
TONS, beat out competition
Soda, Car Manufacturers
8
Market Structures
Monopoly
of Firms (competitors)
Type of Product
Ease of Entry into market
Control over Price
Advertising
Industry Examples
ONE firm
Unique
Impossible
Total
No Need, consumer must buy
Microsoft, pre-court case
9
Market Structures
Natural Monopoly
of Firms (competitors)
Type of Product
Ease of Entry into market
Control over Price
Advertising
Industry Examples
ONE firm, govt controlled
Unique
Impossible
Govt Permission
No Need, household reassurance
National Grid National Fuel
10
Spectrum of Market Elasticity

• Elasticity
• The measure of responsiveness of a change in
  quantity to a change in price.
• How much will a change in price affect quantity
  demanded

• Perfectly Elastic
• (constant price or no q.d.)
• Elastic
• (?P lt ?QD)
• Inelastic
• (?QD lt ?P)
• Perfectly Inelastic
• (any price, constant quantity)

11
Spectrum of Elasticity
On each of the following slides there will be
four products, you must determine which market
structure they will fit in.
Perfect Competition
Monopolistic Competition
Oligopoly
Monopoly
Perfectly Elastic
Elastic
Inelastic
Perfectly Inelastic
12
(No Transcript)
13
(No Transcript)
14
(No Transcript)
15
Homework

• The United States v. Microsoft (2000)