BG - Market Structures Lesson

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Market Structures

An economy has four basic types of markets for goods and services. These range from types of goods and services that have a lot of competition with very little control over price to types of goods and services that have no competition with a lot of control. In the explore section learn about the market structures that make up the U.S. economy. 

Four Basic Market Structures

Market Structures Four Basic Market Structures in an Economy Perfect Competition is a market structure where a large number of businesses compete with the same products. In this structure, businesses can enter and exit the market easily; all businesses can maximize their profit and consumers have no preferences (brands). This is a very rare market structure in its pure form. The stock market and agricultural products are the most closely associated examples. Monopolistic Competition Monopolistic competition is similar to perfect competition, but is a more realistic market structure. In this market structure there are a large number of small businesses competing against each other with similar products. Businesses can easily enter and exit the market and can maximize their profit. Companies can differentiate their brands, making it easier to attract customers. Oligopoly Oligopolies are a market structure where a few (3-5) companies dominate the market. In this type of market structure the companies maximize the profits and sell either differentiated products or the same products. There are barriers to entry and exit the market, keeping out new companies. The oligopolies set prices and often collaborate with each other to control the market. This is a very common market structure in the United States. Monopoly Monopolies are a market structure where only 1 business controls the market. Monopolies are usually illegal in the United States, but there are some instances where they are allowed. In a monopoly there is an insurmountable barrier to entry, so no new companies can enter the market. The monopoly company sets all prices and receives all profits. Some acceptable monopolies are utility companies and geographic monopolies which are where a business is located where no other businesses want to locate. Market Structure Continuum On the market structure continuum you can see that as we move to the right on the continuum there is more control over the market by the companies in the market. Additionally, are you move to the right there is less competition. Left to right Less control and more competition Perfect competition monopolistic competition oligopoly monopoly more control and less competition 

Market Structure Drag and Drop Activity

 

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