Evaluating Market Structures

Topics: Economics, Supply and demand, Monopolistic competition Pages: 6 (1590 words) Published: October 14, 2010
Evaluating Market Structures
Economics 212
Many types of market structures exist, with each market structure proving more effective than the other for certain firms. If a firm choses to enter a different market structure then that firm's financial success will either diminish or flourish accordingly; the latter is usually the case regarding monopolistic competition market structures in the short run. Firms in this market structure must compete by using strategies, hiring skilled labor, evaluating their products, and differentiating their products to survive in the long run. Starbucks is an example of a monopolistic competitive firm that understands how that market structure works, thus giving them substantial profits in the past few years. Starbucks has managed to maintain its success even during unprofitable times with its other branches through customer loyalty, quality private goods, and knowing the labor market. Monopolistic competition also provides consumers with the greatest benefit of all: diversity in the world of coffee. Evaluating Market Structures

This report begins by describing the various types of goods within a market structure and comparing a natural monopoly with perfectly competitive markets. The report then explains labor market equilibrium and how labor supply and demand affects market equilibrium. Next, the report identifies Starbucks market structure and proceeds to evaluate its effectiveness, followed by the factors affecting their supply and demand. The report ends by summarizing key points. Different Types of Goods

Private Good
Goods consumed by one person and also reduce the consumption for another person are private goods (Hubbard & O’Brien, 2010, p. 148). If a person eats a piece of pie then nobody else can eat it, making the private good rivalrous in consumption. Public Good

Goods consumed by one person but do not reduce the consumption by another person are private goods (Hubbard & O’Brien, 2010, p. 467). A public good is non-rivalrous in consumption, such as a classroom setting. Each student consumes the lesson taught at the same time and does not interfere or reduces the other person’s learning. Common Resources

Goods that are rivalrous but not excludable are common resources (Hubbard & O’Brien, 2010, p. 148). Forest land in a poor country is a common resource because nobody benefits from a person cutting down a tree. If nobody has property rights to that forest then nobody is excluded from cutting down the trees. Natural Monopoly

A natural monopoly is a condition where economies of scale are so pronounced that only one firm can survive (Hubbard & O’Brien, 2010, p. 467). An Example is the US Postal service in the delivery of first class mail. Entry into a natural monopoly is risky and costly for new entrants, serving as a natural barrier to entry into the industry. Comparing Market Structures

Contrasting natural monopoly with perfect competition shows that perfect competition provides more output than the monopoly and at a lower price, creating a consumer surplus due to the high competition. Consumers have the upper hand when buying on a perfect competition market than from a natural monopoly as the prices in the latter run high and the commodity is scarce. Explanation of Market Equilibrium

The labor market will reach equilibrium when the amount of workers willing to work for a certain price equals the amount of workers firms are willing to hire for that wage. On a supply and demand curve, the employees represent the supply side while firms represent the demand side. Firms are on the demand side because they are the ones making the jobs available or creating them. They have specific requirements and needs that these workers must satisfy, and the labor supply is maintained based on the firm's requirements. If firms do not have many requirements then the labor supply increases. If firms have no need for jobs then there is no demand, but the supply for labor...

References: Hubbard, R. & O 'Brien A. (2010). Economics (3rd ed.). Boston, MA: Pearson Hall (2010)
Lawrence W
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