econ unit 3

for co's class :/

market structure

the extent to which competition prevails in particular markets

perfect competition

market situation in which there are numerous buyers and sellers, and no single buyer or seller can affect price

Why is agriculture often considered to be an example of perfect competition?

Because individual farmers have almost no control over the market price of their goods

What is the structure of perfect competition?

1. large market
2. similar product
3. easy entry and exit
4. easily obtainable information
5. independence

How does perfect competition benefit society?

It makes sure the consumers are only paying for what the product is worth plus a small profit

monopoly

market situation in which a single supplier makes up with an entire industry for a good or service with no close substitutes

barriers to entry

obstacles to competition that prevent others from entering a market

economies of scale

low production costs resulting from the large size of output

patent

exclusive right to make, use, or sell an invention for a specified number of years

copyright

exclusive rights to sell, publish or reproduce creative works for a specified number of years

oligopoly

industry dominated by a few suppliers who exercise some control over price

production differentiation

manufacturers' use of minor differences in quality and features to try to differentiate between similar goods/services

cartel

arrangement among groups of industrial businesses to reduce international competition by controlling the price, production, and distribution of goods

monopolistic competition

market in which a large number of sellers offer similar but slightly different products and in which each has some control over the price

What are the four characteristics of a monopoly?

1. A single seller
2. No substitute
3. Barriers to entry
4. Almost complete control of market price

What characteristics of an oligopoly allow it to have a limited control over price

1. Domination by a few sellers
2. Barriers to entry
3. Identical or slightly diff. products
4. Non price competition
5. Independence

What are the three types of market structures with imperfect competition?

Monopoly, oligopoly, and monopolistic competition

What is the difference between geographic monopoly and a technological monopoly?

In a geographic monopoly, the setting of the business is isolated and the potential for profits is so small other business don't enter the market. A technological monopoly is a monopoly that exist because the firm controls a manufacturing method, an invention, or a type of technology

interlocking directorate

a board of directors, the majority of whose members also serve as the board of directors of a competing corporation

merger

the legal combination of 2 or more companies that become one corporation

conglomerate

large corporation made up of smaller corporation dealing in unrelating business

deregulation

reduction of government regulation and control over business activity

What is the difference between interlocking directorates and mergers?

In a merger, the two corporations become one but in interlocking directorates the companies are still separate, but with the same working as board of directors.

How have some government regulations affected consumers?

They aim to promote efficiency and competition, but recent evidence shows that govt had actually decreased the amount of competition in the economy

What is the difference between a horizontal merger and a vertical merger?

Horizontal mergers involve businesses that make the same product or provide the same service. Vertical mergers take place when firms taking part in different steps of manufacturing come together.

What two methods does the federal government use to keep businesses competitive?

Sealed bidding and competitive negotiation

What is price gouging?

It is what happens when businesses sharply raise the prices of essential goods such as food, clothing, shelter, medicine, gasoline and equipment needed to preserve lines and property during emergencies.

financing

obtaining funds or money capital for business expansion

cost-benefit analysis

a financial process in which a business estimates the cost of any action and compares it with the estimated benefits of that action

revenues

total income from sales of output

profit

the amount earned after a business subtracts its costs from its revenues

How does competition for financing determine how resources are allocated in the market economy?

If a business succeeds at financing, it uses funds that might have helped another business similar to them

What 5 steps would you use in deciding whether to expand a business?

1. Estimate the costs of expansion
2. Calculate the expected revenues
3. Calculate the expected profits
4. Calculate the cost of a loan + interests
5. Expected profits should outweigh costs of expansion

debt financing

raising funds for a business through borrowing

short-term financing

funds borrowed by a business for any period of time less than a year

intermediate-term financing

funds borrowed by a business for 1-10 years

long-term financing

funds borrowed by a business for a period of time longer than 10 years or funds raised by issuing by issuing stocks

What type of financing is issuing a stock considered as?

Long-term financing

Do holders of stock have any rights in a corporation? Explain.

They have voting rights and they elect the board of directors.

production

process of changing resources into goods that satisfy the needs/wants of individuals and business

consumer goods

goods produced for the individuals and sold directly to the public to be used as they are

mechanization

combined labor of people and machines

assembly line

production system in which the good being produced moves on a conveyer belt past workers who perform individual tasks in assembling it

division of labor

breaking down of a job into small tasks performed by different workers

automation

production process in which machines do the work and people oversee them

robotics

sophisticate, computer-controlled, machinery that operates on an assembly lines

What are the most important steps in the production process?

planning, purchasing, quality control, and inventory control

Explain the factors that have changed production since the early 1800s.

Technology, the assembly line, division of labor, automation, and robotics

What is the largest category of advertising in most countries?

Promotions

marketing

all the activities needed to generate consumer demand and move goods and services from the producer to the consumer

consumer sovereignty

the role of the consumer as ruler of the market when determining the types of goods and produced

utility

the amount of satisfaction one gets from a good or service

market research

gathering recording and analyzing data about the types of goods and services people want

market survey

info gathered by researchers about possible users of a product based on such characteristics as age, gender, income, education, and geographic location

test-marketing

offering a product for sale in a small area for a limited period of time to see how well it sells before offering it nationally

What is the relationship between marketing and utility

Marketing's main purpose is to convince consumers that a certain product will add to their utility

price leaderships

a practice in some industries in which the largest firm publishes its price list ahead of its competitors, who then match those announced prices

penetration pricing

selling a new product at a low price to attract customers away from an established product

promotion

use of advertising to inform customers that a new or improved product or service is available and to persuade them to buy it

direct-mail advertising

type of promotion using a mailer that usually includes a letter describing the product or service and an order or application form

product life cycle

series of stages that a product goes through from first introduction to complete withdrawal from the market

What does place mean when referring to marketing?

Where the product will be sold. This includes placement in the store itself.

What are the stages of a typical product life cycle?

1. Introduction
2. Growth
3. Maturity
4. Decline

Five ways a firm may promote a product

1. free samples
2. cents-off
3. coupons
4. gifts
5. rebates

channels of distribution

routes by which goods are moved from producers to consumers

wholesalers

businesses that purchase large quantities of goods from producers for resale to other businesses

retailers

businesses that sell consumer goods directly to the public

e-commerce

business transactions conducted over the internet

Who may perform the storage function of distribution?

The producer, wholesaler, or retailer

What are factors that a business must consider in choosing a method of transporting goods?

Business people must consider the type of good, such as perishable food. The size and weight of the good are also important.

civilian labor force

total number of people 16 years or older who are either employed or actively seeking work

blue-collar workers

category of workers employed in crafts, manufacturing, and non farm labor

white-collar workers

category of workers employed in offices, sales, or professional positions

service workers

people who provide services directly to individuals

unskilled workers

people whose jobs require no specialized training

semiskilled workers

people whose jobs require some training, often using modern technology

skilled workers

people who have learned a trade or craft either through a vocational school or as an apprentice to an experienced worker

professionals

highly educated individuals with college degrees and usually additional education or training

minimum wage law

federal law that sets the lowest legal wage rate that may be paid to certain types of workers

What factors determine how much a person is paid for his or her work

skill, type of job, and location of job

labor union

association of workers or organized to improve wages and working conditions for its members

strike

deliberate work stoppage by workers to force an employer to give in to their demands

craft union

union made up of skilled workers in a specific trade or industry

industrial union

union made up of all the workers in an industry regardless of job or skill level

closed shop

company in which only union members could be hired

local union

members of a union in a particular factory, company, or geographic area

union shop

company that requires new employees to join a union after a specific period of time

agency shop

company in which employees are not required to join the union, but must pay union dues

right-to-work laws

state law forbidding unions from forcing workers to join and pay union dues

What obstacles did labor unions face when they began to organize in the 1800s?

State legislatures passed laws against unions, and courts upheld them. Many businesses also refused to hire union members or deal with unions.

What are the major kinds of labor unions?

Craft and industrial unions

What two union federations merged in 1955?

AFL and CIO

collective bargaining

process by which unions and employers negotiate the conditions of employment

cost-of-living adjustment (COLA)

provision calling for a wage increase each year if the general level of prices rise

mediation

a neutral person tries to get both sides to reach an agreement during negotiations

arbitration

union and management submit the issues they cannot agree on to a third party for final decision

lockout

situation that occurs when management prevents workers from returning to work until they agree to a new contract

injunction

court order preventing some activity

What has become the most recent trend in the importance of labor unions in America?

They aren't needed because working conditions have improved so dramatically

What is passive money

money you make when you aren't even working