Page 609 - Krugmans Economics for AP Text Book_Neat

What you will learn
in this Module:

Module 57 • The meaning and
dimensions of market
structure
Introduction to • The four principal types of

market structure—perfect
competition, monopoly,
Market Structure oligopoly, and monopolistic
competition

You may have noticed that this section is titled “Behind the Supply Curve,” but we have
yet to mention any supply curve. The reason is that to discuss the supply curve in a
market, we need to identify the type of market we are looking at. In this module we will
learn about the basic characteristics of the four major types of markets in the economy.

Types of Market Structure

The real world holds a mind-boggling array of different markets. Patterns of firm be-
havior vary as widely as the markets themselves: in some markets firms are extremely
competitive; in others, they seem somehow to coordinate their actions to limit compe-
tition; and some markets are monopolies in which there is no competition at all. In
order to develop principles and make predictions about markets and firm behavior,
economists have developed four primary models of market structure: perfect competition,
monopoly, oligopoly, and monopolistic competition.
This system of market structure is based on two dimensions:
■ the number of firms in the market (one, few, or many)
■ whether the goods offered are identical or differentiated
Differentiated goods are goods that are different but considered at least somewhat
substitutable by consumers (think Coke versus Pepsi).
Figure 57.1 on the next page provides a simple visual summary of the types of mar-
ket structure classified according to the two dimensions. In perfect competition many
firms each sell an identical product. In monopoly, a single firm sells a single, undiffer-
entiated product. In oligopoly, a few firms—more than one but not a large number—
sell products that may be either identical or differentiated. And in monopolistic
competition, many firms each sell a differentiated product (think of producers of eco-
nomics textbooks).

module 57 Introduction to Market Structure 567