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Chapter 1 Concepts in the Context of Monopolistic Competition
Dominant Types of Markets
I always like to start class with a pop quiz. It is a good way to get the old gray matter going and stirs up a bit of angst and loathing. There are only three matching questions and they all relate to the dominant types of markets: (1) perfectly competitive marketsMany sellers trading a similar product to many buyers., (2) perfectly monopolistic marketsOne seller trading a similar product to many buyers., and (3) the market hybrid referred to as monopolistic competitionMany sellers trading a slightly differentiated product to many buyers..
| Question 1: Match the market types with their definition | |
|---|---|
| 1. Perfectly competitive market | a. Many sellers trading a similar product to many buyers |
| 2. Monopoly market | b. One seller trading a similar product to many buyers |
| 3. Monopolistic competition market | c. Many sellers trading a slightly differentiated product to many buyers |
If you matched 1 with a, 2 with b, and 3 with c, give yourself one point.
| Question 2: Now match the types of markets with their percentages of total activity | |
|---|---|
| 1. Perfectly competitive market | a. Less than 1% |
| 2. Monopoly market | b. Less than 1% |
| 3. Monopolistic competition market | c. Over 99% |
If you matched 1 with a, 2 with b, and 3 with c, give yourself one point.
| Question 3: Now match the type of market that is easiest to enter | |
|---|---|
| 1. Perfectly competitive market | a. Somewhat easy to enter |
| 2. Monopoly market | b. Very difficult to enter |
| 3. Monopolistic competition market | c. Very easy to enter |
If you matched 1 with a, 2 with b, and 3 with c, give yourself one point.
Give yourself a passing grade if you get above a zero.By the way, I detest pop quizzes. They may work to force people to read the material, but they make learning miserable. Based on the description of the three types of markets, this brief questionnaire illustrates that the best place, and perhaps the only place for entrepreneurs to compete is in markets characterized by monopolistic completion.