WEEK 6
Markets & Government and the Economy
Assessment Task 2
This week is all about working on your second assessment task. Use this information to help you understand the implications of markets and how the government intervenes.
Types of Markets
Content Read this text before attempting the Google quiz.
Monopoly
In a monopoly market structure, there is no competition. Only one firm is selling the good or service, so can essentially set whatever price it wants for the good.
Of course, there needs to be demand for the product for firms with monopolies to make a profit, but they do not face competition from other firms to lower prices. This is bad for consumers, because they have to accept whatever price the firm sets or go without the product at all. It is also bad for the economy as a whole because without competition, there is no incentive for firms to innovate and become more efficient.
Monopolies may develop where goods are unique so there are no close substitutes, and barriers to entry into the market are high, such as high set-up costs and regulations.
State-owned enterprises often have a monopoly, and when they are privatised it is a challenge for the government to manage the process carefully to ensure a private monopoly does not result.
Of course, there needs to be demand for the product for firms with monopolies to make a profit, but they do not face competition from other firms to lower prices. This is bad for consumers, because they have to accept whatever price the firm sets or go without the product at all. It is also bad for the economy as a whole because without competition, there is no incentive for firms to innovate and become more efficient.
Monopolies may develop where goods are unique so there are no close substitutes, and barriers to entry into the market are high, such as high set-up costs and regulations.
State-owned enterprises often have a monopoly, and when they are privatised it is a challenge for the government to manage the process carefully to ensure a private monopoly does not result.
Pure Competition
Pure competition is the ideal market structure, although it only really exists in theory. In this structure, consumers wield the most power. There are many small firms selling products that are the same, so there is a constant downward pressure on price. If a firm charged a higher price, consumers would simply buy an identical, cheaper product from one of the many other sellers.
Firms are therefore price takers. There are no barriers to entry to the market, meaning that there is a constant source of competition.
Firms are therefore price takers. There are no barriers to entry to the market, meaning that there is a constant source of competition.
Oligopoly
In an oligopoly, sellers generally have more power than consumers. There are only a few large firms and relatively high barriers to entry, which limits competition. The firms sell similar products, but with room for considerable differentiation. Firms do have to compete with each other, but prices generally remain relatively high because it is in all firms' interests not to provoke price competition, which would lead to lower prices for all. Instead, they compete on the basis of advertising and the slight differences between the products.
Monopolistic Competition
In a monopolistic market structure, consumers and sellers compete for power. There are many, generally small firms, and relatively low barriers to entry, which leads to strong competition. However, the products sold are similar but with some differences, which can give firms a competitive edge and some power to be price setters.
What a Good One Looks Like
You can use this sample response to help you think about preparing your assessment response.
| student_sample.pdf |
This is another example of how you can create your response.
| microeconomic_reform_cc.pdf |
Here's a contemporary example on WATER
Screened on the ABC 11th June, 2020 730 Report