Unit 3 EXAM

Pure Competition,A market structure where a large number of firms produce essentially the same product.

Characteristics of Pure Competition,Numbers of Firms: Many, Variety of Goods: None, Barriers to Entry: None, Control over Prices: None.

Barriers to Entry,Factors that make it difficult for new firms to enter the marketplace.

Monopoly,A market structure dominated by a single supplier that prevents other firms from competing.

Monopolies and Consumers,Monopolies can take advantage of their power and potentially overcharge consumers.

Economies of Scale,When a producer's average costs drop as a result of production increasing.

Natural Monopolies,A market that runs most effectively when one large firm controls the market, typically government created and/or controlled.

Technology Monopolies,Monopolies typically created by the government that allow the creator to profit from their invention.

Patent,Gives exclusive rights to a company to sell a good or service for a specific amount of time.

Copyright,Similar to a patent, but applies to artistic works such as music, art, and literature.

Franchise,A contract issued by a local authority giving a single firm the right to sell its goods in an exclusive market.

License,Grants firms the rights to operate a business where resources are scarce, such as radio and television broadcasts.

Industrial Organization,When the government allows industry-controlled restrictions of the number of firms available.

Price Discrimination,When monopolies and other business structures charge different prices to different consumer groups.

Examples of Price Discrimination,Children eat for free, senior citizen discounts, student discounts, discounted airline tickets.

Monopolistic Competition,A market structure where many companies compete to sell similar but not identical products.

Examples of Monopolistic Competition,Chips, shoes, jeans, soda, restaurants.

Oligopoly,A market structure in which a small number of firms have the majority of market share.

Oligopoly,A market dominated by a few large firms.

Oligopoly Market Control,Typically, oligopolies have about four firms that control 70-80% of the market.

Price War,A situation where one firm lowers prices and the others follow, benefiting consumers.

Collusion,Price fixing occurs when firms agree to sell at a certain price; it is illegal in the U.S.

Cartel,A formal organization of producers that agree to coordinate their production and prices.

OPEC,Organization of Petroleum Exporting Countries, an oil cartel made up of countries.

Predatory Pricing,When one firm sells a product below cost to drive its competition out of the market.

Antitrust Laws,Laws designed by the government to ensure firms don't control price and supply of important goods & services.

Sherman Antitrust Act,An act from 1890 that limits mergers and monopolies from limiting trade between the states.

Microsoft Monopoly Accusation,In 1997, Microsoft was accused of having a near-monopoly over the operating system market.

Deregulation,When the government removes some controls over a market to promote competition and benefit consumers.

Deregulation Example - Airlines,Deregulation has worked well in the airline industry, spurring competition and lowering prices.

Deregulation Example - Banks,Deregulation has not worked well for banks, leading to many banks going under and costing taxpayers billions.

Sole Proprietorship,A business that is owned & managed by one individual, who earns all the profit and is responsible for the debts.

Partnership,A business owned by two or more persons who agree on a specific division of responsibilities and profits.

Corporation,A business structure that is a legal entity owned by individual shareholders with limited liability for the firm's debts.

Sole Proprietorship,A business owned and operated by a single individual who keeps all the profits and has full control.

Advantages of Sole Proprietorship,Easy to start and end, little government regulation, keep all the profit, pride of ownership, full control.

Disadvantages of Sole Proprietorship,Unlimited liability, assume entire risk of loss, limited resources, lack of permanence.

General Partnership,A partnership where all partners share responsibility, liability, and profit.

Limited Partnership,A partnership where one partner is the general partner with unlimited liability while other partners contribute only money and share profits.

Limited Liability Partnership (LLP),A partnership where all partners have limited personal liability for the mistakes of other partners.

Advantages of Partnerships,Easy to start and end, little government regulation, not as difficult to raise capital, shared risk of loss, more ideas, combination of skills and specialization, no special taxes.

Disadvantages of Partnerships,Unless an LLP, someone has unlimited liability, limited life, profits are shared, potential for conflict.

Corporation,A business structure that is a legal entity owned by individual shareholders, each of whom has limited liability for the firm's debts.

Advantages of Incorporation,Limited liability, flexibility in ownership, potential for growth, easier to raise capital, unlimited life, specialized management.

Disadvantages of Incorporation,Difficult and expensive to start, must have an attorney, less direct control, double taxation, more legal requirements and regulations.

Closely Held Corporation,A type of corporation in which stock is given to family members and is not traded.

Publicly Held Corporations,A type of corporation where stock is owned by many individuals, known as shareholders, and stock is traded on the stock market.

Business Franchise,A semi-independent business that pays a fee to a parent company in return for the exclusive right to sell their product.

Advantages of a Franchise,Management training and support, standardized quality, national advertising, financial assistance, centralized buying power.

Disadvantages of a Franchise,Franchise fees and royalties, strict operating standards, limited product line, purchasing restrictions.

Horizontal Merger,When two or more firms competing in the same market with the same good or service join to form one company.

Examples of Horizontal Mergers,Office Max & Office Depot, T-Mobile & Sprint, Exxon Oil & Mobil Oil (ExxonMobil), XM Radio & Sirius Radio (XM Sirius), Albertson's & Lucky Grocery Stores.

Vertical Merger,When two or more firms involved in different stages of producing the same good or service join together.

Conglomerate Merger,When three or more companies merge that sell unrelated products.

Multinational Corporation,A corporation that sells their products in more than one country and must follow all the laws & pay taxes of that country.

Cooperative,A business organization owned and operated by a group of individuals for their mutual benefit.

Non-profit Organization,An institution that functions like businesses but does not operate in order to make a profit.

Labor Force,All potential workers employed and unemployed - not including the military.

Discouraged Workers,People who once sought work but have given up looking for a job.

Current Unemployment Rate,4.2%, Total unemployed people = 7.2M.

Outsourcing,When a company contracts another company to do a specific job that normally would be done by the company's own workers.

Offshoring,The movement of some of a company's operations, or resources of production to another country.

Visa,Allows individuals from other countries to work here for a specific amount of time, typically for skilled workers.

Demand for Labor,The lower the wages, the more demand for the supply of workers; the higher the wages, the less demand for the supply of workers.

Supply of Labor,The higher the wage, the more demand for the type of job; the lower the wage, the less demand for that job.

Unskilled Labor,Labor that requires no specialized skills, education, or training; usually hourly workers.

Semi-Skilled Labor,Labor that requires minimal specialized skills and education; also hourly.

Skilled Labor,Labor that requires specialized skills and training to operate complicated equipment; hourly employees.

Professional Labor,Labor that demands advanced skills and education; typically salary employees with benefits and job security.

Glass Ceiling,An unofficial barrier that prevents some women and minorities from advancing in careers dominated by white men.

Lowest Wage Demographic,African American women are more likely to earn the lowest wages.

Mediation,A settlement technique in which a neutral party tries to come to an agreement between the two sides.

Arbitration,A settlement by a neutral party that listens to both sides and makes a legally-binding decision that is agreed upon by both sides.