Answer to Question 1
The four degrees of competition are pure competition, monopolistic competition, oligopoly, and monopoly.
Pure Competition: A market structure with many competitors selling virtually identical products. In today's U.S. economy, examples of pure competition have virtually disappeared. The example of agricultural products probably comes the closest.
Monopolistic Competition: A market structure with many competitors selling differentiated products. Producers have some control over the price of their wares, depending on the value that they offer their customers. And new producers can fairly easily enter categories marked by monopolistic competition. Examples might include the clothing industry and fast food establishments.
Oligopoly: A market structure with only a handful of competitors selling products that are either similar or different. The retail gasoline business and the car manufacturing industry, for example, are both oligopolies. Another example might be the soft drink industry.
Monopoly: A market structure with just a single producer completely dominating the industry, leaving no room for any significant competitors. Monopolies usually are not good for anyone except for the company that has control since without competition there is not any incentive to hold down prices or increase quality and choices. Because these undesirable drawbacks can harm the economy, most attempts to monopolize markets in the United States are illegal. The classic example is a natural monopoly, such as a cable television system, water company, or electric utility. The government also fosters temporary monopolies when it grants patents or copyrights.
Answer to Question 2
B
