In the previous lesson, we talked about the first and most common violation of perfectly competitive markets, that being market power. As you are aware, there are three other assumptions of perfect competition that can be violated, leading to market failure of some degree. In this lesson, we will examine a couple of other types of market failure, those being violations of the assumption of free entry and exit as manifested in the form of barriers to entry into a market, and how market players can use imperfect market information to distort market outcomes. We will also look at a special case of monopoly, where having only one supplier actually makes sense from an economic efficiency standpoint, and how society deals with such monopolies.
What will we learn?
By the end of this lesson, you should be able to:
- list and explain the several types of barrier to entry as outlined in the next section of this lesson;
- describe just how it is that natural monopolies can exist;
- describe the negative outcomes that derive from a natural monopoly;
- explain the methods that societies use to deal with natural monopolies;
- list and describe the aspects of information market failure described in this lesson;
- understand and explain when and why firms will use information market failure to their advantage.
What is due for Lesson 6?
This lesson will take us one week to complete. Please refer to Canvas for specific time frames and due dates. There are a number of required activities in this lesson. The chart below provides an overview of those activities that must be submitted for this lesson. For assignment details, refer to the lesson page noted.
|Requirements||Submitting Your Work|
|Reading: Most of the reading in this lesson will be rereading of selected material from Chapter 11 of the text, "Price Searcher Markets with High Entry Barriers."||Not submitted|
|Lesson Homework and Quiz||Submitted via Canvas|