Unit 3: Business and Labor

Chapters 7 - 9

Market Structure

classification that describes the nature and degree of competition among firms in the same industry

Pure Competition

theoretical market structure (very large numbers, identical products, and freedom of entry and exit)

Perfect Competition

“perfect” in every aspect with no competition (4th and 5th conditions are added)

• many buyers, identical products, informed buyers and sellers, and free entry and exit

Monopolistic Competition

market structure that has all of the conditions as pure competition except for identical products

Oligopoly

market structure in which a few very large sellers dominate the industry

Monopoly

market structure with only one seller of a particular product

Natural Monopoly

a single firm can produce a product more cheaply than any number of competing firms could (ex. public utility companies)

Geographical Monopoly

based on the absence of other sellers in a certain geographic area (ex. gas station in the country)

Technological Monopoly

based on ownership or control of a manufacturing method, process, or other scientific method (ex. government-issued patent given to inventor)

Government Monopoly

monopoly owned and operated by the government (ex. processing of weapon-grade metals for the military)

Copyright

an exclusive right of authors or artists to publish, sell, or reproduce their work for their lifetime plus 70 years

Patent

an exclusive right to manufacture, use, or sell any new and useful invention for a specific period - to the inventor

Not Enough Competition

when mergers and combinations of companies result in larger and fewer firms in the industry (reduces the efficient use of scare resources)

Not Enough Information

everyone must have adequate information about market conditions if resources are to be allocated efficiently

Resources That Can’t or Won’t Move

land, capital, labor, and entrepreneurs cannot, or will not, move to markets where they can earn higher returns

Too Few Public Goods

Public goods: product that is collectively consumed by everyone

Externalities/Spillover Effects

Externalities: uncompensated side effects that affect an uninvolved third party

Spillover Effects: uncompensated side effects that either benefit or harm a third party not involved in the activity caused

Unregulated Pure Monopoly

single firm is the only seller in an industry and restricts output in order to drive prices higher and maximize profits (government does not interfere)

Near Monopoly

technically an oligopoly, when one firm dominates most of the output in the industry (government only interferes if the firm uses its powers to destroy competition)

Trusts

combinations of firms designated to restrict competition or control prices in a particular industry

Price Discrimination

practice of selling the same product to different consumers at different prices

Economies of Scale

situation in which the average cost of production falls as the firm gets larger

Sole Proprietorship

business owned and run by a single individual

• easy to start up, ease of management, owner keeps all profits

• unlimited liability

Partnership

business with jointly owned by two or more people

• ease of start up, ease of management, lack of separate taxes and income

• fully responsible/limited by investment

Unlimited Liability

owner is personally and fully responsible for all losses and debts

General Partnership

most common, partner are responsible for management and financial obligations of the business

Limited Partnership

at least one partner is not active in the daily running of the business and has limited responsibility for debts and obligations of the business

Corporation

recognized by law as a separate legal entity with all rights of an individual

• ease of raising financial capital, limited liability (for owners)

• double taxation

Common Stock

basic ownership of a corporation (one vote to elect directors)

Preferred Stock

nonvoting ownership shares of the corporation (cannot vote but receive dividends)

Double Taxation

profits are taxed when the corporations pays income taxes and when shareholders pay taxes on their dividends

Franchise

temporary business investment that involves renting or leasing another firm’s successful business model

• nationwide network, deep product line, excellent quality standards

• others are more expensive, substantial costs to terminate

Merger

combination of two or more businesses to form a single firm

Horizontal Merger

when firms produce the same kind of product join forces

Vertical Merger

when companies involved in different stages of manufacturing, marketing, or sales join together

Conglomerate

firm that typically has at least four businesses, each making unrelated products, none are responsible for a majority of its sales

Community Organizations

schools, churches, hospitals, welfare groups, and adoption agencies

Cooperatives

voluntary association formed to carry on some kind of economic activity that will benefit its members

Consumer Cooperative

voluntary association that buys bulk amounts of goods such as food or clothing that can be sold to members at lower prices than regular businesses

Service Cooperative

provides services such as insurance, credit, or child care to its members, rather than goods

Producer Cooperative

made up of producers - farmers - and helps its members promote or sell their products directly to markets, consumers, or companies that use the members’ products

Labor Union

organization of workers formed to represent its members’ interests in various employment matters

Professional Associations

specialized occupation interested in improving the working conditions, skill level, and pubic perceptions of the profession

Business Associations

businesses organized to promote their collective interests

Closed Shop

employer agrees to hire only union members

Union Shop

workers do not have to be in a union, but once hired they must join

Modified Union Shop

do not have to join a union after being hired

Agency Shop

not required to be a member but must pay union dues

Theory of Wage Determination

supply and demand for a worker’s skills and services determine the wage or salary

Theory of Negotiated Wages

the bargaining strength of organized labor is a factor to determine wages

Signaling Theory

employers are willing to pay more to people with certificates, degrees, and other indicators that signal superior knowledge or ability

Collective Bargaining

negotiations that take place between labor and management over issues such as pay, working hours, health care coverage, etc…

Mediation

bringing in a third person to settle a dispute

Arbitration

both sides agree to place their differences before a third party whose decision will be accepted as final

Fact-Finding

neutral third party collects facts about a dispute and present nonbinding recommendations

Injunction

court order instructing one side to act, or not act

Seizure

temporary takeover of operations

Presidential Intervention

publicly appealing to both parties to resolve their differences

Product Differentiation

process of making a product different from the competition

Non-price Differentiation

marketing strategy where firms compete on factors other than price

Predatory Pricing

drive competitors out of business - set prices below cost for a short period before raising them to monopoly levels

Price-Fixing

competition agree to charge the same, high price to maximize joint profits by eliminating price competition

Stock

certificate of ownership in a corporation - person who owns stock is a shareholder and owner

Dividend

portion of a corporation’s profits paid out to its shareholders