Market structure and competition



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Market structure and competition



When economists talk about market structure they mean the way companies compete with each other in a particular market. Let's take the market for pizzas, for example. There may be many thousands of smallcompanies all trying to win a share of the pizza market, or there may

be only оne huge company that supples, all the

pizzas. These are two very different market structures, but there are many other possible structures Market structure is important because

 

 

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it affects price. In some market structures, companies have more control over price. In other market structures, consumers have more control over price.

You can think of market structure as a kind of scale. At one end of the scale is perfect competition and at the other end is pure monopoly. In a market with perfect competition, there are many companies supplying the same good or service, but none of them are able to control the price. This sounds fine, but in reality it is very difficult for such a market structure to exist. What's needed?

First of all, there must be many small companies competing. Each company has its own small share of the market. If one company has a much larger share than any other, it can affect price, and perfect competition will no longer exist.

Secondly, products or services from different companies must be the same. This doesn't mean that everything on the market has to be identical, but they have to be perfect substitutes. In other words, one company's product must satisfy the same need as another company's. Imagine a company produces a television that also makes tea. Its product is different from everyone else's. If it chooses to raise the price of its TVs, customers may still want to buy them because of this difference.

Thirdly, customers and companies must have perfect and complete information. This means that they know everything about the products and prices on the market and that this information is correct.

Fourthly, there mustn't be any barriers to new companies entering the market. In other words there must not be anything that helps one company stay in the market and blocks others from trading.

Finally, every company in the market must have the same access to the resources and technology they need.

If all of these conditions are met, there is perfect competition. In this kind of market structure, companies are price takers. This is because the laws of supply and demand set the price, not the company. How does this work? Very simply! An increase in demand will make a company increase its price in order to cover costs. It might try to push its prices even higher than necessary so that it can

make more profit. However, it will not be able to do this for very long. The increase in demand and the higher price will make other companies want to enter the market, too. This will drive the price back down to equilibrium.

В Comprehension

Now read the text again and decide whether these statements are true or false.

 

1 Market structure describes how

competitive a market is. T/F

2 Perfect competition and pure

monopoly are opposites. T/F

3 Four conditions are necessary for

perfect competition to exist. T/F 4 In perfect competition, every company makes a slightly

different product. T/F

5 Perfect competition makes it easy

for new companies to start trading. T/F

6 When there is perfect competition, companies are able to set any price they want. T/F

 

Before you listen

Discuss the following with your partner.

Perfect competition is really only an idea. It almost never happens in the real world. Why do you think this is? Can you think of any market that has perfect competition?

 

С Listening )))

Now complete each sentence with words from the box. Then listen and check your answers.

a monopoly an oligopoly

a monopsony

imperfect competition

1 Any market structure apart from perfect competition is called........................

2.......................is when there is only one seller of good or service.

3.......................is when only a small number of sellers control the market.

4.......................is when there is only one buyer in the market for a product or service.

 

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Before you read _

Discuss these questions with your partner.

Can you think of any reason why them are monopolies?

Do you think monopolies have advantages as well as disadvantages?

 

D Vocabulary

Complete each sentence with a word from the box.

■aggressive ■innovation ■network  
■ cables ■ illegal ■legal
■ naturally ■occurs ■ printing  
■publishing ■ takeover  

 

1 A.......................is a set of connections.

When one company gains control of another company it is called a........................

Raw materials are things like wood or oil that exist

4 Electricity travels along.......................to reach

our houses.

5.......................people get what they want by

violence and force.

6......................companies are responsible for the

writing and pictures in books, etc.

7.......................companies make books.

8.......................is inventing and thinking of new

solutions to problems.

9 If something is........................it is allowed by law.

10 When something is........................it is not

allowed by law.

11 If a problem........................you will have to deal

with it

Reading 2

Monopolies

In a monopoly, one company has a much larger market share than anyother company Infact, their share is so big that other companies cannot really compete. When there is а monopoly, the normal laws of supply and demand do not always work. Monopolies come in different kinds, but a pure monopoly is when there is only one company in the market providing a particular product or service This situation, in fact, is the exact opposite of perfecf соmpetition. How do pure monopolies happen?

Somemonopolies occur naturally This happens when a company manages to create an economy of scale. An economy of scale is when variable costs of production increase more slowly than

increasesin supply Everycompany would like to

be in this situation Unfortunately, it's not easyto achieve .Economies of scale are possible for companies which need a lot of money to set up but much less money to run.

 

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telephone company is a good example. Telephone companies have to spend millions of pounds laying cables. However, once they have made the network, running the system does not cost so much. Any other company that wants to compete will have to make their own network. Not surprisingly, not many bother!

However, the world of business is a jungle, and there are more aggressive ways to create a monopoly. One of these is by making takeovers. This means that a more powerful company buys a smaller one in the same industry. Takeovers happen vertically or horizontally. In a vertical takeover, a company buys companies that supply it with materials or services. For example, a publishing company might buy a printing business. In a horizontal takeover, a company buys its competitors. The competitors then become part of the first company.

One final way a monopoly occurs is for the government to make it happen. This is called a legal monopoly, but not because other monopolies are illegal! It is called a legal monopoly because it is created by law. The government may decide that a competitive market is not good for a certain industry. In this case, it can make one company the only legal supplier. Sometimes, it provides the service itself. This is called a store monopoly. The postal service in many countries is an example of a state monopoly.

Generally, monopolies are not good for consumers. This is because in a monopoly, the laws of supply and demand do not work in the same way. A company with a monopoly becomes a price maker. They have much more power to set the price for their product or service. Also, they don't usually spend money on innovation because they don't need to. The bottom line, as they say, is that monopolies mean less choice for consumers.

 

E Comprehension

Now read the text again and match the phrases on the left with the definitions on the right.

1 pure monopoly

2 natural monopoly

3 legal monopoly

4 horizontal takeover

5 vertical takeover

6 price maker

A a company with the power to set prices in the market

В when a company buys a competitor

С when only one company supplies to the market

D when a company buys a supplier

E when a monopoly occurs due to economies of scale

F when a monopoly occurs due to government control

 

Before you listen

Discuss this question with your partner.

What dangers might monopolies face?

 

F Listening )))

Now listen to someone talking about the threats which face monopolies. Tick the things in the list that are mentioned.

1 rising variable costs

2 a fall in demand

3 a change in fixed costs

4 innovation by another company

5 takeover from a foreign company

 

 

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G Speaking

Discuss these questions with your partner.

Do you know any industries where a monopoly exists?

What are the benefits or drawbacks of having a monopoly in that industry?

 

Task

Give a two-minute summary of what perfect competition is. First, read text 1 again and make notes below on the following and then present the talk to your class.

What is perfect and imperfect competition?

What is needed to make perfect competition possible?

Why is it very difficult to create perfect competition?

 

Notes:

H Writing

Answer this essay questions: What do economists mean by market structure? What kinds of market structure exist? How do different market structures affect consumers?

 

Essay about market structure

Use this plan to help you.

PARAGRAPH 1

Introduction. What is market structure?

Useful words and phrases:

compete, competition, market share, control over price

PARAGRAPH 2

Explain perfect and imperfect competition.

Useful words and phrases:

company size, market share, perfect substituter. perfect information, barriers, access

PARAGRAPH 3

Explain monopolies.

Useful words and phrases:

pure monopolies, natural monopolies, economy of scale, takeover, legal monopolies

PARAGRAPH 4

Say how market structure affects consumers.

Useful words and phrases:

price makers and price takers, variety and consumer choice, quality

PARAGRAPH 5

Conclusion. Sum up in a few words what market structure is and how it affects consumers.

Write 200-250 words

Pronunciation guide

Access

Identical

Monopoly

Affect

Barrier

Equilibrium

Occur

Vertically

Horizontally

 

 

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Before you read

 

Discuss these questions with your partner.

In what situation(s) do you think a worker can ask for a lot of money?

In what situation(s) can an employer pay less money to workers?

 

A Vocabulary

Match the words with the definitions.

1 take on

2 obey

3 untility

4 output

5 compromise

6 productivity 7 afford

8 staff

A employees B satisfaction or usefulness

C be able to buy

D follow

E amount produced in a certain time

F employ more staff

G both sides give up something in order to agree

Hwhat a company produces

 

The labour market

 

In many ways the relationship between employers and workers is similar to the relationship between consumers and producers; workers offer a service (the labour they provide), employers buy that service at a price they can afford (the wages they pay ). As you can see, it's a kind of market .In economics, it's called the labour market.

In any market for products and services,

consumers try to get the maximum utility, or satisfaction, from their purchase This is the same in the labour market What do companies want from their purchase of labour? What utility do they get?The answer is increased output.

Output is how much of the product OS service the company produces. If there is an inerease in demand for their product, they will need toincrease output. One way to dothis (but not the only way is to take on more staff. Another is to ask staff they already have to work more hours .In both eases, the company is buying more labour.

Just like any other market, the labour market

obeys the laws of supply and demand. The demand is the employers' need forlabour Supply is the labour workers provide .Just like any other commodity, there is a relationship between price and demand. As the price of labour increases,

the demand decreases .You can see this shown in figure 1.

The suppliers in the labour market are workers. Just like suppliers in other markets they wanta

 

 

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higher price for greater supply. In other words, as supply of labour inereases. they want higher wages. Again, you can see this shown in figure 1. The wage that workers act for their labour is a compromise between what they want and what companies will pay. This is the point where the lines cross in figure 1.

However, there can be shifts in demand. These shifts can cause the overall demand for labour to increase or decrease at any wage rate. For example, if there is an increase in the demand for the end product or service, there will be an overall increase in demand for labour (the demand curve shifts to the right). However, if new technology can replace workers, (hen there will be an overall decrease in demand for labour (the demand curve shifts to the left).

One more thin, which affects demand for labour is workers' productivity, The productivity of a worker is how much they produce in a certain time. For example, imagine that a worker makes ten pencils an hour one day. and only eight pencils an hour the next day. This is a fall in productivity When worker productivity falls, companies will pay less for labour. They are also less likely to employ new workers.

 

В Comprehension

Now read the text again and complete the sentences below in your own words in the space provided.

1The labour market is similar to ...

2 Companies buy labour because they ...

3 Workers want higher...

4 When the price of labour rises ...

5 Four things that cause a change in demand for labour are...

Notes:

 

Before you listen_

Discuss this question with your partner.

What makes workers more or less productive?

 

С Listening )))

Now listen to someone talking about one thing which affects productivity: the law of diminishing returns. Listen and choose the chart А, В or С which best illustrates this law.

 

 

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Before you read_

 

Discuss this question with your partner.

What would influence whether you want to work or not? Think about:

wages

free time

where job situated

health

 

D Vocabulary

Complete each sentence with a word or phrase from the box.

■ balance ■ compensation ■complex
■ influences ■ leisure ■ play a/an
■ rate ■ role ■ skills
■ substitution ■ switch off  

 

1At the weekend everyone needs to relax and .......................from school or work.

2Employers.......................important

.......................in the economy.

3......................is what you receive if you are badly

affected by something.

4......................means replacing one thing

with another.

5Most people's......................time is at the

weekend and in the evenings.

6 It can be difficult to get the right......................

between work and free time.

7 The money you can earn......................people's

choice of job.

8 Some economic problems are very......................

There is no easy solution.

9 The hourly......................for this job is seven

pounds an hour.

10 The ability to speak foreign languages is one of the......................needed for this job.

 

Reading 2

Supply of labour

Why do people work? To make money, of course. However, nothing in economics is ever that simple. The economist will ask a further question: how much are people prepared to work- The answer to this question is much more complex. Finding the right balance between work time and leisure time is one of the trade- offs we have to make in life. The balance each person chooses depends on a number of things.

First of all. there are natural limits. There are only 24 hours in a day. and we can't spend all of them working. Most people need eight hours sleep. That brings the number of hours we can spend on work or leisure down to l<>. None of us are robots, so we all need some time to rest and switch offfrom work. This also brings down the possible number of working hours.

Then, of course, money plays a role. The way money influences working hours, though, is quite complicated. It can be separated into two effects: the income effect and the substitution effect.

 

 

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The income effect works like this: People's time is a resource. It they give up that resource for work, they need compensation. This is usually in the form of a wage for hours worked. The more compensation they gel for each hour worked, the less they will need to work People with higher rates of pay (wages) can afford to have more

leisure time than people on lower rales of pay.

So far. so good. However, are people happy just silling at home and enjoying themselver? It depends on what they'lllose. In other words, it depends on the opportunity cost of not working. As the hourly rate for work increases, the cost of not working also increases. This means that as the wage rale increases, people want to work more hours. This is called the substitution effect. But the substitution effect also has a limit. Eventually, people will not work more hours, no matter how

good the compensation is.

A good wage rate clearly attracts more workers. and encourages them to work longer hours.

However, the strength of this relationship depends

on how clastic the labour supply is. Sometimes it is difficult for companies to find a certain kind of worker. Perhaps there are not many people with the necessary skills. Or perhaps the company is in a place where there are not many available workers. In these situations, even if employers double the wage rate, they will only attract a small

number of extra workers. The labour supply is

ineclastie. In the opposite situation, when it is easy for companies to find workers, the labour supply becomes clastic.

 

E Comprehension

Now read the text again and choose the sentence which best summarises each paragraph.

PARAGRAPH 1

A People generally spend equal amounts of

time on work and leisure,

B People have to make compromises.

С People work in order to have leisure time.

PARAGRAPH 2

A There are only a limited number of hours

available for working.

В Everyone works about 16 hours.

C People can only work up to 24 hours a day.

PARAGRAPH 3

A You have to work more hours to make more money.

B Earning a good wage allows you to spend less time working.

C Some people get paid in their leisure time.

PARAGRAPH 4

A If you work more, you earn more

В If your wage is bad, you will want to

work more.

C If your wage is good, you will want to

work more.

PARAGRAPH S

A Sometimes it's hard to attract workers.

В Sometimes workers don't want more money.

C Elastic labour markets are more common than inelastic labour markets.

 

Before you listen_

Discuss these questions with your partner.

Why are some jobs paid better than others?

Why do some people get paid more than others for doing the same job?

 

F Listening )))

Now listen to someone answering these questions. You will hear four reasons for differences in pay. What are they?

 

 

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G Speaking

Discuss these questions with your partner.

Do people only work for money? What other motivation is there to work?

 

Task

Give a two-minute talk on how supply and demand work in the labour market.

First, read the texts again and make notes below on the following.

How is the labour market just like any other market?

What affects demand for labour? What affects the supply of labour? What motivates people to work?

 

H Writing

You have seen this job advertised in a newspaper. Write a letter of application for the job.

Required: Summer Camp Team Leader

We are looking for suitably qualified and experienced team loaders for our summer camps for young children (aged seven to twelve). Children come from all over Europe to our camps and take part in a variety of outdoor activities (camping, canoeing, climbing, trekking, etc).

Suitable candidates should have proven experience of working with this age group and have the necessary skills and qualifications.

Send letters of application to:

Ms Gibson

Summer Fun Camps

Wayfield

Norfolk

England

 

Letter of application

Use these notes to help you.

PARAGRAPH 1

Say why you're writing and where you saw the advertisement.

Useful words and phrases:

Dear Sir /Madam. I am writing in response to your advertisement in... I would like to apply for the post of...

PARAGRAPH 2

Summarise the suitable qualification you have for the job.

Useful words and phrases:

As you can see from my СV ... I am a qualified ... instructor.

In addition, I hold certificates in... I am a fluent / good speaker of...

PARAGRAPH 3

Summarise the relevant experience you have.

Useful words and phrases:

Furthermore I have the relevant experience you are looking for. For the last five years I have ...

Two years ago I was ...

PARAGRAPH 4

Say why you would like the job.

Useful words and phrases:

There are a number of reasons why I would like to ...

firstly, secondly, thirdly, furthermore, what is more, I hope to gam. I enjoy working with ... This will be an opportunity to ...

Say thank you and sign off:

I look forward to hearing from you soon. Yours faithfully, (your full name)

Write 100-150 words

Pronunciation guide

Obey

Productivity

Utility

Leisure

Substitution

Encourage

Canoeing

Furthermore

 

 

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Before you read _

Discuss the following with your partner.

Look at the photos. Each photo shows

something that an economy needs in order to produce. Talk with your partner about what the photos show and why each thing is necessary for an economy

 

A Vocabulary

 

Choose the correct word.

1 All machines need maintenance / replacement so that they keep working well.

2 Scientists' laboratories are usually full of packaging / apparatus for experiments.

3 When a machine gets very old you need to buy a

maintenance / replacement.

4 It's illogical / mental to take an umbrella out on a sunny day.

5 Plastic and cardboard are used a lot for the

packaging / apparatus around products.

6 Some people enjoy doing illogical / mental activities like crosswords and board games.

7 Wood that hasn't been made into anything yet is called timber / crops.

8 A storage / warehouse is a large building for storing things.

9 The things that farmers grow in then fields are called timber / crops.

10 An industry that needs many workers is known as

a factor / labour intensive industry.

11 If you don't need furniture or equipment for some time, you can put it into storage / warehouse.

12 The price of a product is a factor / labour which influences our decision to buy it.

 

Reading 1

Factors of production

One morning you wake up with a greatidea.

You've thought of a productthat no onе else has, and you're certain there'sdemand for It.Hut how will you turn your Ideainto reality? First of all you'll need raw materials to manufacture from - probably oil and metal, but also paperfor packaging. You can't produce it by yourself, so you'll need people to help you make it. package it and market it. Finally, your staff will need a factory and machines to produce with. In short, you need the factors of productions: land, labour and capital.

 

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The factors of production arc the starting point for all economies. No economy can exist without them. The most basic of the factors is land. When economists talk about land, however, they don't just mean space to build on or fieldsto grow crops. Land means everything that nature provides and we can use for production. The land factor includes raw materials like coal, metals, oil and timber. It also includes things like water, fish and salt. So. although it seems illogical, land also means the sea!

The second factor is labour. Haw materials will just stay in the ground unless people dig them out and do something with them. Similarly, factory machines will sit doing nothing Without people to operate them. Labour can mean the physical effort such as lifting, digging and building. This is called manual work. Labour also includes mental work like thinking, writing, communicating and designing. Industries that need many workers working long hours are called labour intensive industries. However, the quality of labour is as important as the quantity. An educated, skilled and fit workforce is more productive than an uneducated, unskilled and unhealthy one. This characteristic of the labour factor is called human capital. Some countries have large labour forces, but are poor in human capital because the economy lacks education and health care.

The third factor is capital. Capital includes buildings such as factories for production and warehouses for storage. It also includes the tools and equipment that workers use in the manufacturing process. In heavy industries such as shipbuilding or steel making, capital usually involves big machinery and mechanical equipment. In high-tech industries, on the other hand, capital generally means computers and complex laboratory apparatus. These days, industry tends to be more capital intensive than labour intensive.

When companies make investments, they buy new capital. There are two types of investment that companies need to make. The first is to buy new equipment so that they can expand their production. This is called net investment. Net investment is essential for economic growth. However, equipment gets old and needs repairing or replacing. The money spent on this kind of maintenance is called replacement investment.

Land, labour and capital are the three factors of production identified by Adam Smith and the classical economists. However, more recent economists have identified one more factor: entrepreneuship. This means people like you. with great business ideas that set the economy in motion.

 

E Comprehension

Now read the text again and decide whether these statements are true or false.

Raw materials are the most important factor of production.

The land factor includes all the raw materials that come from the land and the sea.

The most important thing about the labour factor is the size of the labour force.

In modern economies, more labour

is used than capital.

Net investment allows companies to increase their production.

Entrepreneurs are part of the labour factor.

 

Before you listen

Discuss the following with your partner.

Entepreneurship is the fourth factor of

production. Which things in the list below do you think entrepreneurs bring to the economy?

 

С Listening

1 managing people

2 motivating people

3 finding solutions to problems г

4 communicating with customers

5 inventing new products

6 finding new markets 2 making profits

8 organising things

9 taking risks

Now listen and tick the things which are mentioned.

 

 

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Before you read _

Discuss the following with your partner.

Look at the workers in the picture:

What kind of work are those people doing?

How do you think they feel about it?

What advantages are there for the company in organising workers like this?

D Vocabulary



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