AP Microeconomics Notes

Chapter 9: Product markets

  1. Perfect Competition
    1. Characteristics
      1. Large number of sellers
        1. no one seller or group of sellers can have a significant effect on the terms of exchange (transaction terms)
          1. prices, quantity, share of market, type of product, distribution, innovation, service warranty/guarantee
      2. All sellers compete for buyers of the same (homogenous) product
      3. The price is set
        1. sellers must charge the “going price” or lose their sales to the other firms
        2. the firms are “price-takers” (they sell at the set prices in the market)
      4. No barriers to entry for firms that want to enter the market
        1. examples: technological secrets, financial barriers, legal constraints
      5. No barriers to exit
        1. examples: government subsidies, tax relief, import quotas, high tariffs
      6. The products produced are perfect substitutes for each other because they are homogeneous
      7. No pricing strategy
      8. The price elasticity of demand for each firm is perfectly elastic
  2. ​​Monopoly
    1. Characteristics
      1. One seller of a product for which there are no close substitutes
      2. Mostly inelastic
        1. but consumers can be influenced by price changes
      3. The downward sloping demand curve implies a pricing strategy
        1. the strategy:
          1. to change prices and outputs
          2. to have a significant effect on the terms of exchange
      4. Barriers to entry allow monopolists to increase prices and limit output
  3. ​​Monopolistic Competition
    1. Characteristics
      1. Medium-sized firms that need to be innovative and differentiate their products in ways other than price
      2. Prices above marginal cost and minimum average cost
      3. Firms are less efficient than those in perfect competition
      4. Pretty inelastic
  4. ​​Oligopoly
    1. Characteristics
      1. ​A few sellers who act interdependently to be price-makers
        1. ​purpose:
          1. to control markets and the terms of exchange
      2. ​​Very strong barriers to entry
      3. Connection: fewer substitutes, lower price elasticity of demand, more pricing power
      4. Both homogenous and heterogeneous products sold
      5. Types:
        1. collusive model
          1. similar to monopoly
        2. noncollusive model
          1. kinked demand curve

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How to cite this note (MLA)

Aboukhadijeh, Feross. "Chapter 9: Product markets" StudyNotes.org. Study Notes, LLC., 12 Oct. 2013. Web. 23 Jan. 2019. <https://www.apstudynotes.org/microeconomics/outlines/chapter-9-product-markets/>.
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