Chapter 7

Conditions of a Perfect Market (list)

Conditions of a Perfect Market (list)

1. large number of buyers and sellers

2. products should be identical

3. buyers and sellers should act independently

4. buyers and sellers should be well-informed

5. buyers and sellers should be free to enter, conduct, or get out of business

Monopoly

market structures characterized by a single producer

Types of Monopoly (list and define)

1. Natural monopoly - market produced by a single firm

2. Geographic monopoly - a firm has a monopoly because of its location or small size

3. Technological monopoly - a firm has a monopoly because it owns or controls a manufacturing method

4. Government monopoly - owned by the government

Types of Technological Monopoly (don't have to list)

1. trademark - special design, name or unique symbol, that identifies a product services or company; usually registered and protected by law

2. copyright - the exclusive right of authors or artists to publish, sell, or reproduce their work for their lifetime + 50 years 3) patent - a monopoly to use a new product or invention exclusively for a period of time (17 years is one example)

Laissez - Faire

philosophy that government should not interfere with business activity

Market Structure

market classification according to number and size of firms, type of product, and type of competition

Perfect Competition

market structure characterized by a large number of well-informed independent buyers and sellers who exchange identical products

Imperfect Competition

market structure where all conditions of pure competition are not met; monopolistic competition, oligopoly, and monopoly

Monopolistic Competition

market structure having all the conditions of pure competition except for identical products; form of imperfect competition

Product Differentiation

real or imagined differences between competing products in the same industry

Non Price Competition

competition involving the advertising of a product's appearance, quality, or design, rather than its price

Oligopoly

market structure in which a few large sellers dominate and have the ability to affect prices in the industry; form of imperfect competition

Collusion

agreements, usually illegal, among producers to fix prices, limit output, or divide markets

Price-Fixing

agreement, usually illegal, by firms to charge a uniform price for a product

Economics of Scale

increasingly efficient use of personnel, plant, and equipment as a firm becomes larger

Types of Collusion (list)

1. Price fixing - agreement, usually illegal, by firms to change a uniform price for a product

2. Dividing up the market for guaranteed sales

Types of Market Failures (list)

Inadequate Competition, Inadequate Information, Resource Immobility, Externalities, Public Goods

Market Failure

market where any of the requirements for a competitive market-adequate competition, knowledge of prices and opportunities, mobility of resources, and competitive profits - are lacking

Externality

economic side effect that affects an uninvolved third party

Negative Externality

harmful side effect that affects an uninvolved third party; external cost

Positive Externality

beneficial side effect that affects an uninvolved third party

Public Goods

economic product that is consumed collectively; highways, national defense, police and fire protection

Trust

illegal combination of corporations or companies organized to hinder competition

Price Discrimination

illegal practice of charging customers different prices for the same product

Cease and desist order

ruling requiring a company to stop an unfair business practice that reduces or limits competition

Public disclosure

requirement forcing a business to reveal information about its products or its operations to the public

Why was antitrust legislation formed?

it is designed to prevent market failures due to inadequate competition

Sherman Antitrust Act

to halt the growth of trusts and monopolies

Clayton Antitrust Act (define this one on test)

outlawed price discrimination

Federal Trade Commission Act

regulates unfair methods of competition in interstate commerce

Robinson-Patman Act

no special discounts or rebates

Federal Aviation Administration (list and define)

oversees airline industry

Environmental Protection Agency (list and define)

protects and enhances the environment

Consumer Product Safety Commission (list and define)

develops standards of safety for consumer goods