Loading...

ECON101: Principles of Microeconomics

Unit 6: Market Structure: Competitive and Non-competitive Markets   *This unit will introduce the concept of perfect competition, an “ideal” model that serves as a benchmark against which real-world market structures are analyzed.  Also known as the model of “pure competition,” perfect competition results in an efficient allocation of resources.  In the real world, however, unregulated markets (which are central to perfect competition) may fail to create desired outcomes for a number of reasons.  Economists refer to these situations as examples of imperfect competition.

In this unit, we will first study the Model of Perfect Competition and then move on to what may be considered the antithesis of perfect competition, the Monopoly Model.  We will then learn about imperfect competition and the two models that fall under it: Monopolistic Competition and Oligopoly.  We will also touch upon game theory through the Prisoner’s Dilemma model and a discussion of the Nash Equilibrium.*

Unit 6 Time Advisory
This unit should take approximately 18 hours to complete.

☐    Subunit 6.1: 4.5 hours

☐    Subunit 6.2: 4 hours

☐    Subunit 6.3: 3 hours

☐    Assessments: 3.5 hours

☐    Unit Review: 3 hours

Unit6 Learning Outcomes
Upon successful completion of this unit, the student will be able to: - Identify the characteristic differences between various market structures, namely, Perfectly Competitive Markets, Non-Competitive Markets, and Imperfectly Competitive Markets and discuss differences in their operation.

6.1 Perfect Competition   - Reading: Principles of Microeconomics: “Chapter 9: Competitive Markets for Goods and Services” Link: Principles of Microeconomics: “Chapter 9: Competitive Markets for Goods and Services” (PDF)

 Instructions: Read this chapter, including the introduction.
Understanding the model of Perfect Competition is crucial to your
understanding of the more complicated and realistic models that will
be studied next. Please take a moment to read through the stated
learning outcomes for this chapter of the text, which you can find
at the beginning of each section. These should be your goals as you
read through the chapter.  This reading covers subunits
6.1.1-6.1.4.  

 Reading this chapter should take approximately 2 hours and 30
minutes.  

 Terms of Use: This text was adapted by The Saylor Foundation under
a [Creative Commons Attribution-NonCommercial-Share-Alike 3.0
License](http://creativecommons.org/licenses/by-nc-sa/3.0/) without
attribution as requested by the work’s original creator or licensee.
  • Web Media: The Open University: Economics Network’s “Online Tutorial on Investigating Perfect Competition” Link: The Open University: Economics Network’s “Online Tutorial on Investigating Perfect Competition (Flash)

    Instructions: Please go through this 35-minute tutorial to examine a model of a firm in a perfectly competitive market.  With the help of demand curves, revenue curves, and cost curves, the tutorial will also teach you how demand in the market affects firm behavior and how an industry supply curve can be derived from the model of the perfectly competitive firm.

    Watching this tutorial should take approximately 45 minutes.

    Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • Reading: Bookboon.com: Krister Ehlester’s Essentials of Microeconomics: “Chapter 9: Perfect Competition” and “Chapter 10: Market Interventions and Welfare Effects” Link: Bookboon.com: Krister Ehlester’s Essentials of Microeconomics: “Chapter 9: Perfect Competition” and “Chapter 10: Market Interventions and Welfare Effects” (PDF)

    Instructions: This reading is optional.  When you click the link above, you will be directed to a page from which you can download the entire book as a PDF.  Scroll down to “Chapter 9: Perfect Competition” on page 68 for information pertaining to subunits 6.1.1-6.1.3, then move on to “Chapter 10: Market Interventions and Welfare Effects” on page 77 for subunit 6.1.4.

    Reading these chapters should take approximately 45 minutes.

    Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

6.1.1 Characteristics of the Model   6.1.2 The Model in the Short Run   6.1.3 The Model in the Long Run   6.1.4 Welfare Analysis   End of Unit 6.1 Review   - Lecture: State University of New York at Oswego: Professor John Kane’s Lecture Notes on ECON 101: “Chapter 10: Perfect Competition” Link: State University of New York at Oswego: Professor John Kane’s Lecture Notes on ECON 101“Chapter 10: Perfect Competition” (HTML)

 Also available in:  
 [Flash](http://economic.oswego.edu/eco101/chapter10.htm)  
 [PPT](http://economic.oswego.edu/eco101/chap10.ppt)  

 Instructions: This set of lecture notes provides not only a review
of this model, but a guide to the elements you need to know in order
to understand the model.  You should have a thorough understanding
of this simplistic model before proceeding onto more complicated
(and realistic) models.  

 Reading this chapter should take approximately 30 minutes.  

 Terms of Use: Please respect the copyright and terms of use
displayed on the webpage above.
  • Lecture: Khan Academy’s “Perfect Competition” Link: Khan Academy’s “Perfect Competition” (YouTube)

    Instructions: Please watch the entire lecture, which is about perfect competition.

    Watching this lecture should take approximately 10 minutes.

    Terms of Use: This video is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License 3.0.  It is attributed to the Khan Academy.

  • Assessment: Econ100’s “Perfect Competition Quiz: Chapter 12” Link: Econ100’s “Perfect Competition Quiz: Chapter 12” (HTML)

    Instructions: Please follow the link to get to the main page of Econ100.  Click on the “Quiz” tab on the left hand side menu and then go to Chapter 12 to take the test.  Please attempt all levels of the quiz for a thorough assessment of your understanding of the material covered in this section.

    Completing this assessment should take approximately 1 hour and 30 minutes.

    Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

6.2 Non-Competitive Markets: Monopoly   - Reading: Principles of Microeconomics: “Chapter 10: Monopoly” Link: Principles of Microeconomics: “Chapter 10: Monopoly” (PDF)

 Instructions: Read this chapter to understand the characteristics,
workings, and effects of the monopoly model. Take a moment to read
through the stated learning outcomes for this chapter of the text,
which you can find at the beginning of each section.  These should
be your goals as you read through the chapter.  This reading covers
subunits 6.2.1-6.2.3.  

 Reading this chapter should take approximately 2 hours.  

 Terms of Use: This text was adapted by The Saylor Foundation under
a [Creative Commons Attribution-NonCommercial-Share-Alike 3.0
License](http://creativecommons.org/licenses/by-nc-sa/3.0/) without
attribution as requested by the work’s original creator or licensee.

6.2.1 Characteristics of the Model   6.2.2 Working of the Model   6.2.3 Effects of the Model   6.2.4 Price Discrimination   - Reading: Bookboon.com: Krister Ehlester’s Essentials of Microeconomics: “Chapter 12: Price Discrimination” Link: Bookboon.com: Krister Ehlester’s Essentials of Microeconomics“Chapter 12: Price Discrimination” (PDF)

 Instructions: When you click the link above, you will be directed
to a page from which you can download the entire book as a PDF. 
Scroll down to “Chapter 12: Price Discrimination” on page 85 to see
how monopolists can potentially use their unique place in an
industry to charge different prices to different consumers – in
other words, how they indulge in "Price Discrimination.”  

 Reading this chapter should take approximately 30 minutes.  

 Terms of Use: Please respect the copyright and terms of use
displayed on the webpage above.
  • Reading: Bookboon.com: Krister Ehlester’s Essentials of Microeconomics: “Chapter 11: Monopoly” Link: Bookboon.com: Krister Ehlester’s Essentials of Microeconomics“Chapter 11: Monopoly” (PDF)
     
    Instructions: When you click the link above, you will be directed to a page from which you can download the entire book as a PDF.  Scroll down to “Chapter 11: Monopoly” on page 80 for a brief exposition of the Monopoly model.

    Reading this chapter should take approximately 30 minutes.

    Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • Lecture: State University of New York at Oswego: Professor John Kane’s Lecture Notes on ECON 101: “Chapter 11: Monopoly” Link: State University of New York at Oswego: Professor John Kane’s Lecture Notes on ECON 101: “Chapter 11: Monopoly” (HTML)
         
    Also available in:
    Flash
    PPT

    Instructions: This set of lecture notes provides a comparison between the two extreme forms of markets studied thus far in terms of analysis.

    Reading this chapter should take approximately 30 minutes.

    Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • Lecture: Khan Academy’s “Monopoly Basics” Link: Khan Academy’s “Monopoly Basics” (YouTube)

    Instructions: Please watch the entire lecture, which is about monopoly basics.

    Watching this lecture should take approximately 5 minutes.

    Terms of Use: This video is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License 3.0.  It is attributed to the Khan Academy.

  • Lecture: Khan Academy’s “Review of Revenue and Cost Graphs for a Monopoly” Link: Khan Academy’s “Review of Revenue and Cost Graphs for a Monopoly” (YouTube)

    Instructions: Please watch the entire lecture, which is about revenue and cost graphs for a monopoly.

    Watching this lecture should take approximately 10 minutes.

    Terms of Use: This video is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License 3.0.  It is attributed to the Khan Academy.

  • Lecture: Khan Academy’s “Monopolist Optimizing Price (Part 1): Total Revenue” Link: Khan Academy’s “Monopolist Optimizing Price (Part 1): Total Revenue” (YouTube)

    Instructions: Please watch the entire lecture, which is about monopolist optimizing price and total revenue.

    Watching this lecture should take approximately 10 minutes.

    Terms of Use: This video is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License 3.0.  It is attributed to the Khan Academy.

  • Lecture: Khan Academy’s “Monopolist Optimizing Price (Part 2): Marginal Revenue” Link: Khan Academy’s “Monopolist Optimizing Price (Part 2): Marginal Revenue” (YouTube)

    Instructions: Please watch the entire lecture, which is about monopolist optimizing price and marginal revenue.

    Watching this lecture should take approximately 10 minutes.

    Terms of Use: This video is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License 3.0.  It is attributed to the Khan Academy.

  • Lecture: Khan Academy’s “Monopolist Optimizing Price (Part 3): Dead Weight Loss” Link: Khan Academy’s “Monopolist Optimizing Price (Part 3): Dead Weight Loss” (YouTube)

    Instructions: Please watch the entire lecture, which is about monopolist optimizing price and dead weight loss.

    Watching this lecture should take approximately 5 minutes.

    Terms of Use: This video is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License 3.0.  It is attributed to the Khan Academy.

  • Assessment: biz/ed’s “Quiz on Monopoly” Link: biz/ed’s “Quiz on Monopoly” (HTML)

    Instructions: Please take this quiz to assess your understanding of Monopoly.

    Completing this assessment should take approximately 30 minutes.

    Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

6.3 Imperfect Competition   Note: We have studied two extreme forms of market structure – one with infinite producers (perfect competition) and one with a single producer (monopoly).  Realistically, within the spectrum of these two models, the vast majority of firms exist in an imperfectly competitive setting where at least one firm is a price setter.  We will now study two other broad categories in the world of imperfect competition: one in which many firms compete (monopolistic competition – for example, the market for restaurants in a city) and another in which few firms compete (oligopoly – for example, the cell phone industry).

6.3.1 Monopolistic Competition   - Reading: Principles of Microeconomics: “Chapter 11, Section 1: Monopolistic Competition: Competition Among Many” Link: Principles of Microeconomics“Chapter 11, Section 1: Monopolistic Competition: Competition Among Many” (PDF)

 Instructions: Read the introduction to the chapter before reading
section 1.  Please take a moment to read through the stated learning
outcomes for this chapter of the text, which you can find at the
beginning of each section.  These should be your goals as you read
through the chapter.  This reading covers subunits
6.3.1.1-6.3.1.3.  

 Reading this section should take approximately 30 minutes.  

 Terms of Use: This text was adapted by The Saylor Foundation under
a [Creative Commons Attribution-NonCommercial-Share-Alike 3.0
License](http://creativecommons.org/licenses/by-nc-sa/3.0/) without
attribution as requested by the work’s original creator or licensee.
  • Reading: Bookboon.com: Krister Ehlester’s Essentials of Microeconomics: “Chapter 15: Monopolistic Competition” Link: Bookboon.com: Krister Ehlester’s Essentials of Microeconomics“Chapter 15: Monopolistic Competition” (PDF)

    Instructions: This is an optional reading.  When you click the link above, you will be directed to a page from which you can download the entire book as a PDF.  Scroll down to Chapter 15 on page 102 to learn about Monopolistic Competition.

    Reading this chapter should take approximately 30 minutes.

    Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

6.3.1.1 Characteristics of the Model   6.3.1.2 Monopolistic Competition in the Short Run   6.3.1.3 Monopolistic Competition in the Long Run   - Lecture: Khan Academy’s “Oligopolies and Monopolistic Competition” Link: Khan Academy’s “Oligopolies and Monopolistic Competition” (YouTube)

 Instructions: Please watch the entire lecture, which is about
oligopolies and monopolistic competition.  

 Watching this lecture should take approximately 10 minutes.  

 Terms of Use: This video is licensed under a [Creative Commons
Attribution-NonCommercial-ShareAlike License 3.0](http://creativecommons.org/licenses/by-nc-sa/3.0/us/deed.en_CA).
 It is attributed to the Khan Academy.
  • Lecture: Khan Academy’s “Monopolistic Competition and Economic Profit” Link: Khan Academy’s “Monopolistic Competition and Economic Profit” (YouTube)

    Instructions: Please watch the entire lecture, which is about monopolistic competition and economic profit.

    Watching this lecture should take approximately 10 minutes.

    Terms of Use: This video is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License 3.0.  It is attributed to the Khan Academy.

  • Assessment: AmosWeb’s “Monopolistic Competition Quiz” Link: AmosWeb’s “Monopolistic Competition Quiz” (HTML)

    Instructions: Please click on the “Quiztastic” icon from the top menu bar.  From the “Select a Topic” option, choose “Monopolistic Competition” and then click on “Retrieve Test” to get to the test page.

    Completing this assessment should take approximately 30 minutes.

    Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

6.3.2 Oligopoly   - Reading: Principles of Microeconomics: “Chapter 11, Section 2: Oligopoly: Competition Among the Few” Link: Principles of Microeconomics: “Chapter 11, Section 2: Oligopoly: Competition Among the Few” (PDF)

 Instructions: This reading covers both topics under subunit 6.3.2 
However, please skip the section “Measuring Concentration in
Oligopoly” and proceed straight to “The Collusion Model.”  Please
take a moment to read through the stated learning outcomes for this
chapter of the text, which you can find at the beginning of each
section.  These should be your goals as you read through the
chapter.  

 Reading this section should take approximately 45 minutes.  

 Terms of Use: The text was adapted by The Saylor Foundation under a
[Creative Commons-Attribution-NonCommercial-ShareAlike 3.0
License](http://creativecommons.org/licenses/by-nc-sa/3.0/) without
attribution as requested by the work's original creator or licensee.
  • Reading: Bookboon.com: Krister Ehlester’s Essentials of Microeconomics: “Chapter 14: Oligopoly” Link: Bookboon.com: Krister Ehlester’s Essentials of Microeconomics: “Chapter 14: Oligopoly” (PDF)

    Instructions: This is an optional reading.  When you click the link above, you will be directed to a page from which you can download the entire book as a PDF.  Scroll down to Chapter 14 on page 96 to learn about Oligopoly.

    Reading this chapter should take approximately 30 minutes.

    Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • Lecture: Khan Academy’s “Oligopolies, Duopolies, Collusion, and Cartels” Link: Khan Academy’s “Oligopolies, Duopolies, Collusion, and Cartels” (YouTube)

    Instructions: Please watch the entire lecture, which is about oligopolies, duopolies, collusion, and cartels.

    Watching this lecture should take approximately 10 minutes.

    Terms of Use: This video is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License 3.0.  It is attributed to the Khan Academy.

  • Assessment: AmosWeb’s “Oligopoly Quiz” Link: AmosWeb’s “Oligopoly Quiz” (HTML)

    Instructions: Please take the above quiz on oligopoly to test your understanding of the subject.

    Completing this assessment should take approximately 30 minutes.

    Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

6.3.2.1 Game Theory   6.3.2.2 Nash Equilibrium   - Lecture: Khan Academy’s “Prisoners’ Dilemma and Nash Equilibrium” Link: Khan Academy’s “Prisoners’ Dilemma and Nash Equilibrium” (YouTube)

 Instructions: Please watch the entire lecture, which is about the
Prisoners’ Dilemma and the Nash Equilibrium.  

 Watching this lecture should take approximately 10 minutes.  

 Terms of Use: This video is licensed under a [Creative Commons
Attribution-NonCommercial-ShareAlike License 3.0](http://creativecommons.org/licenses/by-nc-sa/3.0/us/deed.en_CA).
 It is attributed to the Khan Academy.

Assessment for Unit 6   - Assessment: The Saylor Foundation’s “Unit 6 Practice Questions” Link: The Saylor Foundation’s “Unit 6 Practice Questions” (HTML)

 Instructions: These questions are drawn from a practice exam
prepared by a widely used provider of prior learning assessments.
For each question, pick the best possible choice which answers the
question.  
    
 Completing this assessment should take approximately 15 minutes.

End of Unit 6 Review   - Reading: MIT OpenCourseWare: “Principles of Economics Lecture Notes D22-D29” Link: MIT OpenCourseWare: “Principles of Economics Lecture Notes D22-D29” (PDF)

 Instructions: These are optional readings.  Please click on the
link above and then scroll down and download the PDFs numbered
D22-D29 to review the theory learned in this unit.  

 Reading these notes should take approximately 2 hours and 30
minutes.  

 Terms of Use: The article above is released under a [Creative
Commons Attribution-NonCommercial-Share-Alike License
3.0](http://creativecommons.org/licenses/by-nc-sa/3.0/).  You can
find the original MIT version of this
article [here](http://ocw.mit.edu/courses/economics/14-01-principles-of-microeconomics-fall-2007/lecture-notes/).