In this lesson, we took a closer look at the assumptions we make in our model of perfectly competitive markets. However, in real life, no markets are perfectly competitive - at least one of our assumptions will be violated. This results in "market failure," a situation where the market fails to generate the maximum theoretical amount of wealth.
We took a close look at the failure of the first assumption, that concerning market power. We looked at how firms that have market power can behave in ways that increase their profits, and how this behavior affects market equilibria. We looked at outcomes for various types and degrees of market power, and we looked at a couple of tools that government has to try and measure just how concentrated a market is.
Have you completed everything?
You have reached the end of Lesson 5! Double check the list of requirements on the first page of this lesson to make sure you have completed all of the activities listed there.