Econ. Chapter 7 Vocabulary

Market structure

________ refers to the organization of a market, based mainly on the degree of competition among producers.

Market power

The ability to influence prices -- usually by increasing or decreasing the supply of goods -- is known as _________. The more competitive the market, the less ________ any one producer will have.

Perfect competition

The most competitive market structure is ________. In this marker structure, a large number of firms produce essentially the same product. This is the most efficient structure, with prices set by supply and demand.

Commodity

A product that is exactly the same no matter who produces it is called a _________.

Price takers

Producers are said to be ________ because they must accept, or take, the market price for their product.

Transaction costs

Economists refer to the costs of shopping around for the best product at the best price as _________.

Barriers to entry

Our look at dairy farming hints at some of the obstacles that can restrict access to a market and limit competition. Such obstacles are known as _________.

Start-up costs

One possible barrier is _________, or the initial expense of launching a business.

Consumer sovereignty

In a purely competitive market, the consumer is king. Indeed the rationale of such a market is often described as __________.

Imperfect competiton

Economists define _________ as any market structure in which producers have some control over the price of their products. These producers have market power.

Monopoly

A _________ is a market or an industry consisting of a single producer of a product that has no close substitutes.

Price setters

Unlike competitive firms, monopolistic businesses are _________ rather than price takers.

Trusts

Others took the form of _________, or combinations of firms, that worked together to eliminate competition and control prices.

Antitrust laws

Viewing monopolies as harmful to public interest, Congress enacted ________ to limit their formation.

Public franchise

A __________ is a contract issued by a government entity that gives a firm the sole right to provide a good or service in a certain area.

License

A __________ is a legal permit to operate a business or enter a market.

Natural monopoly

The third type of monopoly is a __________. This kind of monopoly arises when a single firm can supply a good or service more efficiently and at a lower cost than two or more competing firms can.

Economies of scale

The term _________ refers to the greater efficiency and cost savings that result from increased production.

Oligopoly

An _________ is a market or an industry dominated by just a few firms that produce similar or identical products.

Concentration ratio

The proportion of the total market controlled by a set number of companies is called the __________.

Price leadership

In an oligopoly dominated by a single company, that firm may try to control prices through __________. The dominant firm sets a price, and the other, smaller firms follow suit.

Price war

If the other firms also lower their prices, the market is said to be experiencing a ______.

_________ are hard on producers but beneficial for consumers.

Collusion

_________ occurs when producers get together and make agreements on production levels and pricing. It is illegal because it unfairly limits competition.

Cartel

A __________ is an organization of producers established to set production and price levels for a product. They are illegal in the U.S. but they do sometimes operate on a global scale, most often in the commodities markets.

Monopolistic competition

In __________, a large number of producers provide goods that are similar but varied.

Brand

Each company has marked its shoes with its own _________, or trade name.

Brand loyalty

As a result, customers may develop __________, favoring one company over all others. This gives the favored company some degree of market power.

Product differentiation

Firms in this type of market engage in ___________, which means they seek to distinguish their goods and services from those of other firms, even when those products are fairly close substitutes for one another.

Nonprice competition

But they also engage in ___________, using product differentiation and advertising to attract customers.

Market share

These producers hope to increase their firm's _____, or proportion of total sales in a market.

Market failures

Because these structures do not allocate goods and services in the most efficient way, economists call them __________.

Externality

An __________ is a side effect of production or consumption that has consequences for people other than the producer or consumer.

Negative externality

A __________ is a cost that falls on someone other than the producer or consumer.

Positive externality

A __________, on the other hand, is a benefit that falls on someone other than the producer or consumer.

Technology spillover

The benefit from a __________ results when technical knowledge spreads from one company or individual to another, thereby promoting further innovations.

Public goods

Another example of market failure involves __________ -- goods and services that are not provided by the market system because of the difficulty of getting people who use them to pay for their use. Goods and services that are used collectively and that no one can be excluded from using.

Private goods

Public goods are the opposite of __________, or goods and services that are sold in markets.

Excludable

First, private goods are _________. This means that anyone who does not pay for the good can be excluded from using it.

Nonexcludable

Public goods, on the other hand, are __________. Think of streetlights. How could you prevent some people from using the light from streetlights? You could not. This makes them __________.

Rival in consumption

Second, private goods are said to be __________, which means that a good cannot be consumed by more than one person at the same time.

Nonrival in consumption

In contrast, public goods are _________. One person's use of a streetlight's glow does not diminish another's ability to use its light as well.

Free-rider problem

Private firms do not provide us with these public goods for a simple reason: they have no way to make the people who benefit from nonrival and nonexcludable goods pay for them. Economists call this situation the __________.