Economic Organization Flashcards
(30 cards)
Economic Organization
- Traditional/ Subsistence economy
- Command Economy
- Market Economy
“What you produce is what you consume”
Traditional/ Subsistence economy
- Economic Affairs are organized the way they have always been done
- Occupations stay in the family and most families are farmers who grow crops using traditional methods
- Traditional/ Subsistence economy
“Centralized structure for economic decisions”
Command Economy
- Government decides what goods and services will be produced and what prices it will
charge for them, the methods of production to use and wages for workers - In our current world this is known as the socialist, communist or Marxist ideology
- Command Economy
“Decentralized decision making”
Market Economy
- Based on private enterprise, the individuals or groups of private individuals own and
operate the means of production - Supply of goods and services are based on the demands of the society
- Market Economy
Kinds of Markets:
- Perfect Competition
- Monopoly
- Oligopoly
- Monopolistic Competition
Characteristics:
1. Many buyers and many sellers in the market
2. Goods offered by various sellers are homogenous (the same)
3. Firms can freely enter or exit the market
Perfect Competition
Because of these characteristics, the actions of any single buyer or seller in the market have a negligible impact on the market price, each buyer and seller takes the market price as given.
Perfect Competition
the price is given by the market, as dictated by the market forces of supply and demand
Perfect Competition
” many buyers and sells”
“ homogeneous goods”
“ free entry and exit”
Perfect Competition
A firm is considered a monopoly if it is the sole seller of its product and if its product does not have any close substitutes.
The fundamental cause of monopoly is barriers to entry. This means that, a monopoly remains the only seller in the market because other firms cannot enter the market and compete with it.
MONOPOLY
3 main sources of barriers to entry
- Monopoly resources- a key resource required for production is owned by a single firm
- Government regulation- the government gives a single firm the exclusive right to produce some good or service
- Production process- a single firm can produce output at a lower cost than can a larger number of firms
a key resource required for production is owned by a single firm
Monopoly resources
the government gives a single firm the exclusive right to produce some good or service
Government regulation
a single firm can produce output at a lower cost than can a larger number of firms
Production process
is a price maker instead of a price taker. This is because, being the sole supplier of a good or service, it can dictate the price
and at which quantity it produces.
Monopoly
does this where the price of its goods is greater than
marginal revenue. This will create a profit box, where it will not be selling all of its goods.
Monopoly
“Monopoly Revenue”
“Government regulation”
“Production process”
“Price Maker”
Monopoly
Attributes of a monopolistic competition
- Many sellers- there may firms competing for the same group of customers
- Product differentiation- each firm produces a product that is at least slightly different from those of other firms.
- There is free entry and exit- firms can enter or exit the market without restrictions
there may firms competing for the same group of customers
Many sellers
each firm produces a product that is at least slightly different from those of other firms.
Product differentiation
firms can enter or exit the market without restrictions
There is free entry and exit
