Consumer and producer surplus

Consumer and producer surplus measure the total welfare a market creates. You can use them to show how monopoly and pric

Perfect competition, imperfectly competitive markets and monopoly

Consumer and producer surplus

Consumer surplus — the extra benefit buyers gain by paying less than they were willing to pay — and producer surplus — t

Perfect competition, imperfectly competitive markets and monopoly

Contestable and non-contestable markets

A contestable market is one where new firms can enter and exit easily. Even a single dominant firm behaves competitively

Perfect competition, imperfectly competitive markets and monopoly

Contestable and non-contestable markets

Sunk costs are costs a firm cannot recover if it leaves a market. Hit-and-run competition is when a new firm enters brie

Perfect competition, imperfectly competitive markets and monopoly

Contestable and non-contestable markets

A contestable market is one where new firms can enter and exit easily, meaning even a single dominant firm faces competi

Perfect competition, imperfectly competitive markets and monopoly

Market structure, static efficiency, dynamic efficiency and resource allocation

Static efficiency measures how well a market uses its resources at a single point in time. Dynamic efficiency measures w

Perfect competition, imperfectly competitive markets and monopoly

Market structure, static efficiency, dynamic efficiency and resource allocation

Productive efficiency means a firm produces at its lowest possible cost per unit. Allocative efficiency means the price

Perfect competition, imperfectly competitive markets and monopoly

Market structure, static efficiency, dynamic efficiency and resource allocation

Dynamic efficiency measures how well a market improves over time. It grows when firms invest in new technology, train wo

Perfect competition, imperfectly competitive markets and monopoly

Market structure, static efficiency, dynamic efficiency and resource allocation

Different market structures — from perfect competition to monopoly — produce very different outcomes for how well resour

Perfect competition, imperfectly competitive markets and monopoly

Market structures

Markets can be arranged on a spectrum. At one end, perfect competition has many firms competing fiercely. At the other e

Perfect competition, imperfectly competitive markets and monopoly

Market structures

Economists sort markets into categories called market structures. They use three key factors: how many firms compete, ho

Perfect competition, imperfectly competitive markets and monopoly

Market structures

Economists classify industries using the concept of market structure — the defining characteristics of a market, such as

Perfect competition, imperfectly competitive markets and monopoly

Monopolistic competition

Monopolistic competition diagrams show a firm earning supernormal profit in the short run. In the long run, new rivals e

Perfect competition, imperfectly competitive markets and monopoly

Monopolistic competition

Monopolistic competition describes a market where many firms sell similar but slightly different products. No significan

Perfect competition, imperfectly competitive markets and monopoly

Monopolistic competition

Firms in monopolistic competition compete by making their product stand out — through branding, quality, or service — ra

Perfect competition, imperfectly competitive markets and monopoly

Monopolistic competition

Monopolistic competition describes markets — such as restaurants or hairdressers — where many firms sell similar but dif

Perfect competition, imperfectly competitive markets and monopoly

Monopoly and monopoly power

A monopoly diagram shows how a firm that controls a market sets its price and output. It uses cost and revenue curves to

Perfect competition, imperfectly competitive markets and monopoly

Monopoly and monopoly power

Monopoly power is a firm's ability to set prices above competitive levels. Four key factors determine how much of that p

Perfect competition, imperfectly competitive markets and monopoly

Monopoly and monopoly power

A monopoly can harm consumers by raising prices and reducing choice. But it can also benefit the economy by funding inno

Perfect competition, imperfectly competitive markets and monopoly

Monopoly and monopoly power

A monopoly exists when a single firm dominates a market, giving it the power to act as a price maker — setting prices ab

Perfect competition, imperfectly competitive markets and monopoly

Oligopoly

An oligopoly is a market dominated by a small number of large firms. Each firm watches its rivals closely, because any d

Perfect competition, imperfectly competitive markets and monopoly

Oligopoly

Oligopoly describes markets dominated by a few large firms. Those markets can still look very different from each other

Perfect competition, imperfectly competitive markets and monopoly

Oligopoly

Economists define oligopoly in two ways. One looks at how the market is built — a few large firms dominating. The other

Perfect competition, imperfectly competitive markets and monopoly

Oligopoly

A concentration ratio measures how much of a market the largest firms control. Add up the market shares of the top firms

Perfect competition, imperfectly competitive markets and monopoly

Oligopoly

Oligopolies either collude — secretly agreeing with rivals to fix prices or output — or compete independently against ea

Perfect competition, imperfectly competitive markets and monopoly

Oligopoly

Firms in an oligopoly sometimes work together. Cooperation is legal joint activity. Collusion means secretly agreeing to

Perfect competition, imperfectly competitive markets and monopoly

Oligopoly

The kinked demand curve model explains why oligopoly firms rarely change their prices. Rivals copy price cuts but ignore

Perfect competition, imperfectly competitive markets and monopoly

Oligopoly

Oligopolists often avoid competing on price because cutting prices triggers retaliation. Instead, they compete through a

Perfect competition, imperfectly competitive markets and monopoly

Oligopoly

Several forces shape what oligopolists charge, produce, and spend. These forces include how rivals react, whether firms

Perfect competition, imperfectly competitive markets and monopoly

Oligopoly

In an oligopoly, each firm's decisions directly affect its rivals. Because firms know this, every pricing or output choi

Perfect competition, imperfectly competitive markets and monopoly

Oligopoly

Oligopoly brings benefits like innovation and product variety, but also risks like high prices and collusion. Whether it

Perfect competition, imperfectly competitive markets and monopoly

Oligopoly

Markets dominated by a small number of large firms — a structure called oligopoly — behave very differently from more co

Perfect competition, imperfectly competitive markets and monopoly

Perfect competition

Economists use two linked diagrams to show how a perfectly competitive firm behaves. One diagram shows the whole market

Perfect competition, imperfectly competitive markets and monopoly

Perfect competition

Perfect competition rests on four key assumptions. Each assumption removes a firm's ability to control its price or earn

Perfect competition, imperfectly competitive markets and monopoly

Perfect competition

A price taker must accept the market price set by supply and demand. It cannot charge more or less than every other sell

Perfect competition, imperfectly competitive markets and monopoly

Perfect competition

Under perfect competition, resources end up used in the best possible way. Prices are driven down to the lowest sustaina

Perfect competition, imperfectly competitive markets and monopoly

Perfect competition

Perfect competition is a theoretical market model built on assumptions — including large numbers of producers, identical

Perfect competition, imperfectly competitive markets and monopoly

Price discrimination

Price discrimination means charging different customers different prices for the same product. Three conditions must exi

Perfect competition, imperfectly competitive markets and monopoly

Price discrimination

Price discrimination helps firms earn more profit by charging different prices to different customers. But it can harm c

Perfect competition, imperfectly competitive markets and monopoly

Price discrimination

Price discrimination is when a firm with market power — the ability to set its own price rather than accept the market p

Perfect competition, imperfectly competitive markets and monopoly

The dynamics of competition and competitive market processes

Competition between firms produces benefits for consumers both quickly and over time. In the short run, prices fall. In

Perfect competition, imperfectly competitive markets and monopoly

The dynamics of competition and competitive market processes

Firms compete in more ways than simply cutting prices. Competition also pushes businesses to make better products, lower

Perfect competition, imperfectly competitive markets and monopoly

The dynamics of competition and competitive market processes

Creative destruction happens when new technologies or business models replace old ones. Innovative firms grow, and the b

Perfect competition, imperfectly competitive markets and monopoly

The dynamics of competition and competitive market processes

Competition between firms does more than push prices down — it drives businesses to cut costs, improve quality, and inno

Perfect competition, imperfectly competitive markets and monopoly

The objectives of firms

Traditional economic models assume every firm tries to make as much profit as possible. Profit is the money left over af

Perfect competition, imperfectly competitive markets and monopoly

The objectives of firms

A firm maximises profit by producing the quantity where the cost of making one extra unit equals the revenue that unit e

Perfect competition, imperfectly competitive markets and monopoly

The objectives of firms

In large companies, the people who own the firm (shareholders) are usually different people from the managers who run it

Perfect competition, imperfectly competitive markets and monopoly

The objectives of firms

Not every firm chases maximum profit. Firms can instead pursue goals like growing as large as possible, maximising sales

Perfect competition, imperfectly competitive markets and monopoly

The objectives of firms

Satisficing means a firm aims for an outcome that is 'good enough' rather than the best possible. Managers set a target

Perfect competition, imperfectly competitive markets and monopoly

The objectives of firms

Traditional economic models assume firms pursue profit maximisation — producing at the output where the extra cost of ma

Perfect competition, imperfectly competitive markets and monopoly