ECON 1010 Lecture Notes - Lecture 10: Market Power, Perfect Competition, Demand Curve
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17 Dec 2018
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Businesses aim for monopoly"s economic profits and price-making power. Competitors usually push businesses toward the normal profits and price taking of perfect competition: monopoly only seller of product or service; no close substitutes available. Demand curve is steep and inelastic: market power business"s ability to set prices, price maker monopoly with maximum power to set prices. Monopoly"s inelastic demand: businesses can set any price, but cannot force consumers to buy. Even monopoly price makers must live by law of demand: perfect competition many sellers producing identical products or services. Demand curve is horizontal and perfectly elastic at the market price: price taker business with zero power to set prices. Perfectly elastic demand for an individual business in perfect competition. Pricing power depends on the competitiveness of a business"s market structure available substitutes, number of competitors, barriers to the entry of new competitors and on elasticity of demand: market structure characteristics affecting competition and pricing power.
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