CAS EC 101 Lecture Notes - Imperfect Competition, Virtuous Circle And Vicious Circle, Monopolistic Competition
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CAS EC 101 Full Course Notes
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Document Summary
Competition is imperfect when one or more of these features are removed. Various forms of imperfect competition can be defined as 1) to 5) are modified in different ways. Imperfect competition from a small number of sellers or from product differences. Monopolistic competition (many firms with differentiated products) Bad products or bad customers that cannot be identified. Customers who can"t be supervised buy too much or behave badly when others. Used cars have hidden problems (adverse selection) Vicious circle -- market doesnt work properly. Buyers of health insurance tend to be less healthy than average (adverse selection) Insured people may see the doctor too often and get too many medical tests (moral hazard) Healthy people dont want to buy insurance. Vicious cylce -- market doesnt work properly. A firm has market power if it can raise its prices without losing all of its customers. This happens when no other firm is producing the same (or very similar) product.
