Differentiating_Between_Market_Structures

This paper will analyze the four market structures: monopoly, oligopoly, monopolistic competition, and perfect competition; determine how the market structures affect supply and demand; compare and contrast public goods, private goods, common resources, and natural monopolies; determine which structure is more effective and the efficiency of the market in providing the goods. In recent economical study the market structures are described as: Monopoly-single seller which has control over price; Oligopoly-a few large sellers that has some control over price; Perfect Competition-no power to influence price with many buyer and sellers of standardized products; Monopolistic Competition-large number of companies with small portion of profit share. In the government’s effort to provide economic well-being, it has constructed a solution that improves the outcome of the economy in the form of market systems. All market systems consist of sellers and buyers. However, one system creates boundaries that can be challenging for the government; called the free market system. The government allocates goods and services for everyone to use without barriers to consumption. When goods have no monetary price it will often cause the public to overuse the good or service. When a person receives the benefit of a good without having to pay for it, economists consider this a free ride (Mankiw, 2008,p .226). For example, consider public beaches, there usually considered a free good. If a town has three private beaches, and only one public beach, the public beach will become over-used. People will not feel inclined to pay for, and use private beaches. For this reason, sometimes the government feels inclined to regulate public behavior by imposing property rights and supplying goods that the public needs to balance the economy. (Pg.236) There are three other types of goods that the government has better success at regulating: • Private goods – goods that are excludable and rival in consumption • Common resources – goods that are rival in consumption but not excludable • Natural monopolies – a good that is excludable but not rival in consumption A private good is any product or service that one expects to pay for, thus only benefiting from the the purchase. For instance, when purchasing a home, this is only for ones family’s use. (pg. 224-225) Common resources can be accessed by anyone, but can exclude others from getting the benefit on an individual basis. For example, when someone goes hunting and kills a deer, there is one less deer to hunt in the forest, but one can’t stop others from hunting. Natural monopolies differ from private and common resources in that a single firm can produce a product for an entire market at a lower price than two or more firms can. However, the product is consumable by everyone. Consumers in a city or township use streetlights, therefore everyone benefits from the service if you live on that street because the town has already paid for it. (p.314) Table: Four Market Structures Perfect Competition Monopoly Oligopoly Monopolistic Competition An example of an organization Lyda Farms AAFES Goodyear Tire & Rubber Co. Ross Barrier to entry No Yes Yes No Goods or services produced by the organization Vegetables and fruits Retail & Food sales to uniformed personnel Tires & Rubber products Retail clothing Number of organizations 1 30,000+ 60 957 Price elasticity of demand Perfectly elastic-large amount of substitutes Inelastic, because there are no close substitutes to AAFES(military exchange) Elasticity is based on competition. Price will be less elastic above equilibrium, and more elastic below equillibrium Highly elastic Economic profits: Is there a presence of economic profits' (Yes or no) Long Term-No Short Term-Yes Yes Yes Long Term-No Short Term-Yes The Home Builders Association of Metropolitan Harrisburg The organization that we are evaluating is The Home Builders Association of Metropolitan Harrisburg (HBA). The HBA is an association of building, remodeling professionals, and related companies. These building professionals and related companies include more than 100 categories related to the building industry. The HBA is extremely unique in its market and is the only association that represents its industry for 30 miles. There are other chapters representing the different regions as throughout the United States. The local builders associations are affiliated with the National Association of Home Builders (NAHB) in Washington DC; they help promote the policies that make housing a national priority. The HBA is no different from the other local monopolies, like the company that the local government contracts to pick up the refuge and recyclables. The HBA is the only association in town when you are in the building industry and seek the many benefits that they have to offer. The HBA is extremely successful in serving as a liaison between the NAHB, the NAHB Sales and Marketing Council (NSMC), the government (local and state), the Realtors, and local builders and remodeler. The HBA has two major events. These major events make up the bulk of their budget for each year, along with membership dues. The Pennsylvania Home Show that is the biggest home show in the east coast. Along with the exhibitors paying significant fees for exhibiting their services and goods, the public’s fee is $12 (2009’s entrance fee) per person and there is a parking fee of $5 per vehicle. The other event is The Parade of Homes, which happens every year. With this event the builders register and pay a significant fee for this 10 day event. When a business gains complete control over its industry, the company will naturally seek to increase its profits and keep them high over the long-term (Gale, 2008). The current recession has caused a decrease in the building industry and the HBA has seen a decline in the participation of its major events for the year 2009. The economy is slowly moving in an upward direction and there should be a positive demand for exhibitors for the HBA’s two major events. If the economy steadily increases, we will see an increase in the demand from the public and an increase in the building trade to exhibit their services. The question is will the public be ready to start spending again to keep the economy rolling in its positive direction. The affect of the labor market by the supply and demand of labor The labor market is the market in which people compete for jobs and employers compete for workers, and when there is equilibrium in the labor that only means that the supply of labor in a market is equal to the demand for labor. Production plays a major part in determine the supply of goods and services. When the demand for a good or service is high; for example what is there was a shortage in the production of the vaccine that protect against the H2N1 virus, the labor market equilibrium is off there is a higher demand than there is a supply. The supply needs to meet the demand, so the manufactures of the vaccines need to hire more employees to keep up with the production demand. Once the production capability has been meet the equilibrium in the labor market has been restored. The labor market equilibrium is also affected by the prices that are set by firms, as consumers have more money to spend, firms can sell more products at every price, but in doing so they also realize; the prices that they choose will influence the amount of products that they sell in our case the H1N1. In conclusion, we have a very complex system put in place to keep our country running in an orderly fashion. Most people go about their everyday lives taking for granted the enormous task economist and government officials deal with. Keeping our economy in a state of well being takes thousands of elected officials and many years of trial and error. How this country prospers directly relates to the people that create these systems and have the enormous responsibility of stabilizing our economy. We can do our part as well by limiting our use of public goods, and taking better care of the free resources the government allows us. When we do not treat our natural resources as if they truly belong to all of us, the government sees no other choice but to step in and regulate them with property rights, taxes and fees. After all, we have a big world to live in, and we want earth to be enjoyable for future generations.