I.
Intro
A.
How much control does a seller (or buyer, or gov't) have in setting prices?
B.
Substitutes exist but goods oftern have some dimension of uniqueness
II.
Monopoly
A.
One Seller
1.
Find a monopolist in the strict sense
2.
Is a cable provider a cable provider or a provider of "entertainment services"?
B.
Originally corporations were monopolies
1.
Corporate charters were grants of monopoly
2.
Many monopolies exist today because of gov't grants of monopoly
3.
Is there a private monopoly?
4.
Which is more common?
5.
Which is more long-lasting?
C.
If defined broadly enough, no monopoly
D.
If defined narrowly enough, every seller is a monopoly
E.
Inherently ambibuous term
III.
The Issue Is Elasticity
A.
Alternatives always exist
B.
Never perfectly inelastic demand
C.
Market power is inversely related to elasticity of demand
IV.
Price Takers & Price Searchers
A.
Why do large corporations hire people to decide what price to charge and wheat farmers don't?
B.
Price Takers - perfectly elastic demand
1.
2.
Price takers and "competitive markets"
a)
Many sellers
b)
Free Entry & exit
c)
Homogeneous product
d)
Perfectly resource mobility
e)
Perfect information
3.
Problems with the concept of perfect competiton
a)
It ignores the
process
of moving to equilibrium - finding the shortest line or the best stock to buy.
b)
It ignores the importance of the institutional arrangements of the society
c)
It ignores the role of entrepreneurs in the adjustment process
C.
Optimal Resource Allocation in Competitve Markets
1.
Demand curve represents the marginal value of additional units of the good or service
2.
Supply curves are marginal opportunity cost curves
3.
Equilibrium as the optimal allocation - all the units for which the marginal benefit to someone exceeds the marginal opportunity cost.
4.
5.
D.
Price Searchers
1.
Some control over market price
2.
Downward sloping demand curves - some control over market price.
3.
Demand is not perfectly elastic
A. 